BUSINESS STUDY REPORT:
This report is devoted to the YEO’s Beverage Company. The report has four main parts. The first part is an introduction where the general information about the company, the environment where it operates and its main competitors are presented. The second part is microeconomic analysis. The factors of production and its cost structure are examined there. The third part macroeconomic analysis where macroeconomic environment in which the business operates are discussed. The forth part is the analysis of sustainability and the impact of business operations on the environment. At the end of the report, there is a conclusion to the whole work that have been done.
Business and its competitive environment
Business description
YEO’S Beverage Company, or Yeo Hiap Seng Limited, “was founded in 1900 by Yeo Keng Lian in Zhangzhou in the Fujian Province of China” (official website). “Today, YHS has grown into a successful food and beverage group of companies with an international presence” (Far East Organization). This was archived thanks to its founder Yeo Keng, a man of a great forecast, who “ventured into foreign soil and in 1937, set up the Yeo Hiap Seng Sauce Factory in Singapore which soon flourished and quickly expanded into Malaysia in 1940s.” (Official website). Since that time, the company has built customers’ loyalty all over the world. Currently based in Singapore, The YEO’s brand is considered to be well known all over the world as a symbol of high quality and unique products. In December 2015, its “got the prestigious Singapore Productivity Award by the Singapore Business Federation in recognition and an affirmation of efforts towards raising productivity” (Yeo Hiap Seng Limited Annual Report 2015). During all its history, the YEO’s Company has been paying a lot of attention to the innovations. The YEO’s Company first introduced many products, that today we use in our everyday life. Such products include:
- canned curry chicken;
- bottled Soya Bean Milk;
- Chrysanthemum Tea.
Moreover, “Yeo’s was also the first company in the world to package its Asian drinks in tetra-brik aseptic containers using the UHT process” (Official website).
Products of the company
Nowadays the main products of the company include:
Beverages:
Chrysanthemum Tea,
Soy,
Asian Drinks,
Pet bottles,
Yoghurt,
Juices.
Food:
Noodles,
Canned food,
Sauces.
Nevertheless, Yeo Hiap Seng Limited is not only a food producer but also operates in Property Segment.
Markets where the company operates
The markets where the company operates include:
The USA and Canada,
The UK (Europe),
Australia and New Zealand,
China,
Hong Kong,
Indochina,
Malaysia,
North Asia,
Asia, Africa, Oceania/ South Asia,
Vietnam.
Identification of competitors
The main competitors of Yeo Hiap Seng Ltd are:
Del Monte Pacific Ltd (DMPL) - “a global branded food and beverage company that caters to today’s consumer needs for premium quality healthy products” (DelMontePacific official website).
Fraser and Neave Limited – “a leading Asia Pacific Consumer Group with expertise and prominent standing in the Food & Beverage and Publishing & Printing industries” (Official FN website).
Hanwell Holdings Ltd – a leading provider of consumer essentials.
Food Empire Holdings Limited – “a global branding and manufacturing company in the food and beverage sector” (FoodEmpire official website).
Eu Yan Sang International Limited “retails, wholesales, and manufactures traditional Chinese medicine” (Bloomberg markets).
All these companies are based in Asian region what makes Asian food and beverage market very competitive. One more peculiarity is that most of these companies are “old-timers” and have a long history of its activity. This fact arises high barriers to entry for new companies. It is very difficult to compete with huge corporations with a lot of market experience.
Competitive environment
We may conclude that the competitive environment is close to perfect competition because of the great amount of competitors on the market. Company’s products have many close substitutes. What concerns cost of the product, it is a product of everyday use and 90% of customers can afford it. For example, let us analyze the prices on Walmart online shop. For example, Yeo's Soymilk costs 1.16$ per 250ml; Westsoy Organic – 1.10$ per 250ml; Dream Soy Milk – 0,98$ per 250ml. The demand curve of the firm is relatively elastic and adapts to the structure of demand and competitors' prices.
Identification of market share
Yeo Hiap Seng Ltd. is one of the leaders on Asian market. For example, it has 40% of the market share of drinks in Malaysia and 48% in Singapore. The presence in other countries is not very high but the company uses different market strategies in order to foothold in the markets and improve its market share. Moreover, one of the most import strategies for the company for the next few years is to penetrate on new markets. On Figure 1 there can be seen the turnover of the company by geographical regions.
Figure 1 – Turnover by geographical regions
Yeo Hiap Seng Limited Annual Report 2015
2) Micro analysis
a. Identification of required factors of production
When to speak about the microeconomic analysis, it is necessary to look at Yeo Hiap Seng Limited Annual Report 2015. As it is mentioned there, “the company achieved a year-on-year growth in FY2015, registering 1.4% and 27.2% increase in both revenue and net profits to $443.5 million and $36.8 million respectively” (Yeo Hiap Seng Limited Annual Report 2015). The main characteristics of a company’s activity are revenue, net income and costs. Revenue shows a company’s activity in sailing its goods. Net income reflects the effectiveness of a company’s activity through the balance of revenue and costs. The main goal to any company is to increase its net income. Figure 2 shows Revenue and Net Income of the company during 5 years from 2011 to 2015.
Figure 2 – Yeo Hiap Seng Limited Revenue and Net Income
Marketsft.com
b. Classification and analysis of fixed and variable costs
Table1 shows costs of the company during two years 2014 and 2015.
Yeo Hiap Seng Limited Annual Report 2015
1H16 for the company looks in the following way:
“revenue inched down 0.8%, due to lower contributions from the group
consumer & group enterprise segments;
a 5.3% gain in overall net profit” (Shares investment).
According to this table, costs of sales has declined in 2015 with comparison with 2014. It is necessary to mention, that cost reduction is a fundamental objective of any enterprise. At the same time, administrative and finance cost have increased. This have happened because the company was trying to improve its activity after disastrous 2014. With this purpose, the company hired a specialist who developed a policy to overcome difficulties what reflected on administrative costs. Moreover, the company took a loan for implementing this policy that reflected on finance expenses.
Variable costs of the company exceed fixed costs. The effect of scale is topical for the company because the YEO’s Company is a huge corporation with large production line.
3) Macro analysis
a. Description and analysis of the macroeconomic environment and its changes
While preparing the macroeconomic analysis it is necessary to start with the observation of the market situation. The year 2015 had next peculiarities:
“Intense competition in the market;
Regional currency violation;
The increase of raw materials prices;
Regional economic slowdown” (Yeo Hiap Seng Limited Annual Report 2015).
All these characteristics mean that the year 2015 was not easy for business from the economic point of view. Many companies have lost their market shares and felt loses.
The key predictions on 2016 for East Asia Pacific Economic are the follows:
The growth of the economy “is expected to ease only modestly, from 6.5% in 2015 to 6.3% in 2016 and 6.2% in 2017-18” (The World Bank, 2016).
The region “accounted for almost two-fifths of global growth in 2015, more than twice the combined contribution of all other developing regions” (The World Bank, 2016).
“The region has benefited from careful macroeconomic policies, including efforts to boost revenue in commodity-exporting countries” (The World Bank, 2016).
It is necessary to mention, that such indicators are good ones if to compare, for example, with European countries. In 2016 “France GDP growth is predicted to be 1,7%, Spain - 2,5%, The UK – 2,1%, Germany – 1,8%” (European Commission). From this comparison we may conclude, that Asian market is very perspective and full of opportunities. The purchasing power is increasing every year. This implies that for Yeo Hiap Seng Limited is better to concentrate their activities in Asian region. Moreover, Asian food market is the largest in the world. “The food industry in the Asia-Pacific region has grown to $1.83 trillion, exceeding Europe's $1.80 trillion” (Sung-jin, 2016). The population of the region is more than 2 billion people and this fact provides a good basis for the further development.
During the last decades, the movement to healthy lifestyle is becoming more and more popular all over the world. People became to care what do they eat and drink. Many scientific researches concluded that the duration and quality of life depends on the diet. In this case, people are ready to spend more and buy healthy and organic food. Figure 3 shows key opportunities markets for healthy food. As it can be seen, the main countries to grow the supply of healthy food are Japan, Singapore, Hong Kong, South Korea and Taiwan. In all these countries, Yeo Hiap Seng Limited has its presence what have additional opportunity to increase its sales
Figure 3 – Key opportunities markets for helthy food
Figure 4 shows global sales of beverages by region. Once again Asia Pacific shows the highest rate of growth +35%.
Figure 4 - Global sales of beverages by region
b. Prediction and analysis of likely changes in the macro environment and implications on the business
According to the Yeo Hiap Seng Limited Annual Report 2015, during next three years they are planning to improve its activity through “investing in new plants for future growth and upgrading its existing equipment to achieve better efficiency as well as lower operating costs” (Yeo Hiap Seng Limited Annual Report 2015). The main market of interest for next few years is Cambodia. “A factory in the Phnom Penh Special Economic Zone” is planning to build there (Yeo Hiap Seng Limited Annual Report 2015). Cambodia is nor for a sudden become of Yeo Hiap’s interest. According to Cambodia business profile, this country presents good opportunities for investors. Together with its “2,4% GDP growth and 15 million population” the country looks very preferable for doing food business ( Doing Business 2016). Moreover, Yeo Hiap Seng Limited is planning to “start on a systemic overhaul of the Group’s production facilities” (Yeo Hiap Seng Limited Annual Report 2015). With this purpose, it is planning to build a new factory instead of existing factory in Johor Bahru, Malaysia in order to “to cater to the merging demand in the local and export markets” (Yeo Hiap Seng Limited Annual Report 2015). One more thing that is of a great interest of Yeo Hiap Seng Limited is corporate responsibility. The company pays a lot of attention to its employees and ties to ensure decent working conditions. The company believes that “a conducive workplace can support better organizational communication and enhance employees’ productivity, reduce absenteeism and increase retention rates” (Yeo Hiap Seng Limited Annual Report 2015). As the result, employees’ satisfaction will lead to the “improving long-term business performance” (Yeo Hiap Seng Limited Annual Report 2015).
c. Export information
Yeo Hiap Seng Limited exports its product in many countries. Figure 5 illustrates the latest exchange rates for main global currencies comparing with Singapore dollar.
Figure 5 – Top Singapore dollar exchange rates
In general, SGD is a stable currency that reflects general stability and strong position of Singapore economy.
As a large exporter, the income of the YEO Company depends on exchange rate of other currencies. The advantage of YEO in this filed is that its main importers (The USA, Canada, Australia, Europe) are the countries with high developed economy and stable currency. In this case, income is likely to be safe from unpredictable losses from currency exchange rates.
Most of YEO’s products are products of daily use. In this case, it is obvious that economic environment will poorly influence total demand. Nevertheless, the structure of demand may change. For example, such products as soya milk may be easily substitute by cow milk, which is much cheaper.
When to speak about the access to key factors of production (management, machines, materials, and money) it is also necessary to take into consideration, that the YEO Company is a huge corporation with wide possibilities. Of course, every company faces difficulties during its activity and reflects states of global economy. Nevertheless, huge corporations has more possibilities in getting access to qualified management, adjusted technology and possible loans from banks or governments than small companies.
Sustainability practice
Identification of externalities and mitigating measures
It is obvious that intense competition will continue to take place in food and beverage markets. We have already mentioned that in the Asian region is a home place for many huge food corporations. In order to be able to compete, companies are to use all the possible competitive advantages. Many companies use diversification strategy and embrace new kinds of activities. Yeo Hiap Seng Limited, for example, has business in Property Department. Nowadays, Property Departments brings 41% of total Operating Profit to the company. This example illustrates the effectiveness of the diversification strategy.
One more way to improve business is the participation in strategic alliances and coalitions. In 2006, Yeo Hiap Seng Limited established a joint venture with Uni-President Enterprises Corp. The result of the joint venture was that “Uni-President expanded into the Malaysian and Singaporean markets, while Yeo Hiap Seng, with the use of Uni-President's facilities and sales channels in Thailand, taped the Thai market” (Jhu, 2006). The activity of joint venture was successful and Yeo Hiap Seng Limited decided not to stop on archived. In this case, on March 2016, Yeo Hiap Seng Limited announced the agreement to establish a joint venture with “China Huiyuan Juice Group Limited, a leading vertically-integrated fruit and vegetable juice producer in China” (China Huiyuan Juice, 2016). The joint venture company (the "JVC") will be located in Malaysia and will produce and distribute fruit and vegetable juice. Alliances are also a good way to penetrate into foreign markets. In 2005, Yeo Hiap Seng Limited has formed a sales and distribution alliance with American Hain Celestial Company. The purposes of the alliance were to:
“pursue opportunities in research and development in areas of food and nutrition,
marketing, branding and the expansion of distribution channels and geographical markets,
cross- selling, spanning Asia including Singapore, Malaysia, Hong Kong and China and in the United States, Canada and Europe” (The Hain Celestial Group, Inc, 2005).
The alliance, that has being implemented in 2005, brought mutual benefits for both companies.
b. Evaluation of the impact on long-term business viability
One more strategic step taken by Yeo Hiap Seng Limited is the license to produce other brands’ product. For example, the company has the license from the Perpsico Company to produce Pepsi, 7 Up and Mirinda. In addition, in Asian market Yeo Hiap Seng Limited has exclusive control of such brands as Red Bull, Evian and Gatorade. This is a very important strategic step for the company because such products as Pepsi or Red bull have strong association with Western culture. It is a well known fact that Asian region, as well as many others in the world, feels the process of Americanization. Young people from Asia want to imitate the western culture in every aspect of everyday life including food and drinks. In this example Yeo Hiap Seng Limited appears visionary player in the market with strong desire to meet the latest customers’ needs.
c. Long-term business viability
The latest trend in the global business is that companies that have sustainability practices are more competitive. YEO’s large activity in this field will contribute its success in long-term period. Moreover, customers also prefer companies that take care of the environment and leads social responsible activities. According to the latest statistic, companies spend no less than 3% of their incomes on activities to maintain sustainability. The inference is obvious: sustainability practice would affect the company’s long-term business viability in a positive way.
Conclusion
In conclusion, I would like to say that Yeo Hiap Seng Limited is a huge corporation with international activities. The main strengths of the company are:
large experience in the market;
the implementation of the strategy of diversification;
Competent policy management;
Asian market opportunities for growth for food and beverages industry.
All these strengths provide a solid basis for further successful development of the company.
References
Bloomberg markets. Eu Yan Sang International Ltd. Retrieved from http://www.bloomberg.com/quote/EYSAN:SP
China Huiyuan Juice. (2016, March 22). Huiyuan Juice and Yeo Hiap Seng Form Joint Venture to Enter Juice Market in Malaysia. Retrieved from http://www.prnewswire.com/news-releases/huiyuan-juice-and-yeo-hiap-seng-form-joint-venture-to-enter-juice-market-in-malaysia-300239427.html
DelMontePacific official website. Company profile. Retrieved from http://www.delmontepacific.com/Website/Content.aspx?i=1
Doing Business 2016. Economy Profile 2016 Cambodia. A World Bank Group Flagship Report. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/cambodia/~/media/giawb/doing%20business/documents/profiles/country/KHM.pdf
European Commission. Winter 2016 Economic Forecast: Weathering new challenges. Retrieved from http://ec.europa.eu/economy_finance/eu/forecasts/2016_winter_forecast_en.htm
FoodEmpire official website. Corporate. Retrieved from http://www.foodempire.com/
Far East Organization. YEO HIAP SENG LIMITED. Retrieved from http://www.fareast.com.sg/en/About-Us/Corporate-Structure/Yeo-Hiap-Seng-Limited.aspx
Jhu,B. (2006, February 10). Uni-President and Yeo Hiap Seng form strategic alliance. Taiwan Today. Retrieved from http://taiwantoday.tw/ct.asp?xItem=23178&ctNode=103
Markets data. Yeo Hiap Seng Limited. Retrieved from http://markets.ft.com/research/Markets/Tearsheets/Financials?s=Y03:SES
Official FN website. About FRASER AND NEAVE, LIMITED. Retrieved from http://www.fraserandneave.com/about-us
Official YEO’S website. Corporate info. Retrieved from http://www.yeos.com.my/corporate-info/
Shares Investment. Yeo Hiap Seng. Retrieved from http://www.sharesinv.com/Y03/
Yeo Hiap Seng Limited Annual Report 2015. Retrieved from http://www.yeos.com.sg/imagestore/userfiles/file/financial_reports/YHSL_AR2015.pdf
Sung-jin, C. (2016, January 19). Asian food market emerges as new 'blue ocean'. Korea Times. Retrieved from http://www.koreatimes.co.kr/www/news/biz/2016/01/123_195760.html
The Hain Celestial Group, Inc. (2005, August 3). Hain Celestial Announces Asian Alliance With Yeo Hiap Seng Limited. Retrieved from http://ir.hain-celestial.com/phoenix.zhtml?c=87078&p=irol-newsArticle_Print&ID=738878
The World Bank, (2016, April). East Asia Pacific Economic Update, April 2016: Growing Challenges. Retrieved from http://www.worldbank.org/en/region/eap/publication/east-asia-pacific-economic-update
