Analysing The Opportunities And Threats Of Lacnor

To develop a SWOT analysis of the company, we need to analyze all its components: strengths, weaknesses, opportunities, and threats. To analyze the opportunities and threats of

Lacnor, we will use the two main techniques: PESTEL analysis (macro analysis) and Porter’s

5+1 forces (micro analysis). In this section, we will begin by PESTEL.

Political:

1) Political Instability between UAE and KSA:

In mid August 2009, the map that is shown on UAE identity card caused a conflict between UAE and KSA. The claim is that it includes parts of KSA (Saudi halts recognition of UAE ID cards, 2009). This created many problems on the borders of both countries. Trucks’ moving between both countries started to be delayed intentionally. In fact, the problems started in June 2009 because of changes in Saudi border formalities (Kasolowsky, 2009).

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Approximately, 35% of the juices sold in UAE are imported from KSA. In fact, many of Lacnor’s competitors are Saudi companies, such as: Rabie, Sun quick, Al Marai, Danao and others. Since most of Saudi products are being imported through trucks, the availability of Lacnor’s competing products in the market is affected. Thus, this problem actually represents an opportunity for Lacnor.

2) Government Control Over Prices:

The prices in the juices and dairy products industry is being exposed to control by UAE government. Although there is no exact law written, UAE government often prohibits increases in prices of juices and dairy products, unless the increase in price is justifiable, such as a change in the product size (Dairy and Juice Producers’ Group not to raise prices , 2007). This is justified by the government’s interest in ensuring that consumers are not affected by any market price manipulations for essential goods. Furthermore, because most of those products are sold in government co-ops, the government has a huge impact on reducing prices of those products at specific times of the year, such as what happened in Ramadan 2009 (Ammari, 2009). This governmental control, generally, represents a threat to Lacnor and the entire industry.

Economical:

1) Economic Condition:

The global financial crisis of 2008 had affected individuals and companies all over the world. Because of the financial crisis, the income level of individuals has greatly decreased, which consequently led to reduction in demands for many products. Yet, the juices and dairy industry didn’t get affected by the crisis. In 2009, the dairy industry in UAE has been expanding at a rate of 10% despite the global economic slowdown (Mashni, 2009). This is mainly because dairy products are essential goods in consumers’ daily lives. Thus, the economic crisis represents in fact an opportunity for Lacnor and other companies in the industry where many consumers have moved to buy those products that are relatively inexpensive and meet their needs.

2) Unemployment Level:

The UAE unemployment rate has increased by 3.45% in 2007, and 4% in 2008, and is expected to slightly increase further by the end of 2009 (Kawach, 2009). The increase in unemployment rate, as well as, the very recent financial problems in Dubai, which has been referred to as “Dubai Financial Crisis,” represent a threat for Lacnor in affecting its ability to attract foreign labor force to the market and its ability to keep their current employees.

Social:

1) Lifestyle Changes:

There have been many changes in the lifestyles of people in the UAE. Among those changes is the general movement by people toward less healthy lifestyles. This is evident in the increase of diabetes and obesity rate in UAE. People have been moving toward fast-food and less healthy choices of food and drinks. In fact, many expatriates claim that living in this country has affected their lifestyles by pushing them toward less healthy lifestyles (McMeans & Zaman,

2009). Such lifestyle changes represent a threat for Lacnor where the company products don’t meet the new lifestyles of many individuals.

2) Increasing Diversity of Workforce:

UAE is a multicultural environment where residents come from all over the world. There is an increase in cultural diversity at the workplace that made it easier to understand and communicate with foreigners. This increase in cultural diversity represents an opportunity for Lacnor where they can attract better or cheaper labor from all over the world.

Technological:

1) New Technologies (Equipments):

According to Mehmet Gumus, Assistant Professor of Operations Management at the

American University of Sharjah, the industry in which Lacnor operates, the juices and dairy products industry, is attractive in the sense that there are always new technological innovations in the equipments used for manufacturing products. The rate at which new equipments are being innovated is very high. Some of those changes are complete new innovations such as equipments that are used to detect defective products using advanced statistical techniques such as Six Sigma technique. Other changes, however, are incremental changes, such as equipments that increase the volume of production through increasing the speed of these equipments. In total, those new equipments represent opportunities for Lacnor.

2) Innovation Opportunities:

There are many opportunities for innovations in the juices and dairy products industry.

Through R&D and new technologies, companies operating in the industry have opportunities to produce different mixtures of juices and dairy products by adding different ingredients that can produce new flavors. Although these innovations are generally incremental rather than radical, they provide opportunities for Lacnor.

Ethical:

All over the UAE, and mainly in Dubai, there has been recently a huge pressure by society toward recycling waste produced by companies. This pressure was due to the increase in the amount of waste produced in the UAE each year. This amount has been represented in the article “Waste: A real challenge for Dubai” by the following statement: “Imagine a building 270m high and with the same area as a football field. Now imagine 10 of them, all lined up, one after another. This is the amount of waste Dubai produces every year.” (Stensgaard, 2006). Recycling campaigns and projects are increasing and the society is putting high pressure on companies to recycle their waste. Those ethical pressures can be considered as opportunities for the companies to market themselves through focusing on their contributions in corporate social responsibility, they are generally considered to be threats that put pressures on companies to contribute more to social activities that can increase their costs. For Lacnor specifically, this is considered to be a threat with the huge amount of waste the company has from their productions.

Legal:

1) Employment Laws:

Although there are many laws in UAE that classify the conditions for employment, there are no specific laws for working in the juices and dairy industry. For example, unlike the specific conditions related to working in healthcare, real estate, or auditing companies, regulations regarding who is able to work in the production of those products are generally much more flexible. This gives the industry the opportunity to attract better or cheaper labor.

2) Safety Regulations:

Safety regulations at the workplace are increasing in the UAE. Articles 91 to 101 (inclusive) from the Labor Law in the UAE specify certain provisions regarding employee safety and health care at the workplace. For manufacturing companies mainly, laws regarding providing employees with suitable means of protections against injuries, occupational diseases, and hazards which may result from the use of machinery and other equipment in the workplace are being strictly imposed by governments. Violations of those regulations cause manufacturing companies

a lot of fines and might result in legal actions taken against them. Those regulations represent a threat to Lacnor as a manufacturing company because they have to strictly follow them.

In analyzing the external environment (i.e. opportunities and threats), it is not enough to look only at the macro societal factors that affect the company. The opportunities and threats for the company stem also from its industry. Thus, it is important to use a micro level of analysis by analyzing the task environment. This is done using Porter’s 5+1 Competitive Forces Model which analyzes the attractiveness of an industry by assessing different factors, which are: the

threat of new entrants, the rivalry level among existing firms, the pressure from substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the relative power of other stakeholders.

Porter’s 6 competitive forces.

In analyzing the external environment (i.e. opportunities and threats), it is not enough to look only at the macro societal factors that affect the company. The opportunities and threats for the company stem also from its industry. Thus, it is important to use a micro level of analysis by analyzing the task environment. This is done using Porter’s 5+1 Competitive Forces Model which analyzes the attractiveness of an industry by assessing different factors, which are: the threat of new entrants, the rivalry level among existing firms, the pressure from substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the relative power of other stakeholders.

Threat of New Entry:

When studying the threat of new entry, there are many factors that we should look at before assigning a general estimate for the threat level. One of the factors to consider is the industry growth rate. The juices and dairy products industry growth rate in 2009 has been estimated by the Ministry of Economic Development to be 10% (Mashni, 2009). In light of the global financial crisis, this is considered to be a high growth rate. The increase in the industry growth rate results in increasing the threat of new entrants. Another factor that should be studiedis the profit margin of key players in the industry. By studying the financial statements, we found that the profit margin of Lacnor and its competitors is considered to be high and, more or less, constant in recent years. This stability of high profit margins, even in the worst economic conditions, results in attracting new candidates to the industry, and thus, it results in increasing the threat of new entrants. There are many factors in which one can study the height of entry barriers in the industry. One of those barriers is government control. As mentioned earlier, the

UAE government has tight control over the prices in the industry; we believe that this is considered to be a barrier for new entrants and thus, it can result in decreasing the threat of new entrants. Another factor to be considered in studying entry barriers is customers’ switching costs.

Generally speaking, there are few, if any, switching costs that are associated with juices and dairy products; this makes it easy for customers to switch to new companies which can result in increasing the threat of new entrants. Another barrier to be studied is the amount of capital requirements. According to Linda Angel, Assistant Professor of Operations Management at the

American University of Sharjah, there are many capital requirements needed to have an effective and efficient production in the juices and dairy products industry. Those investments in requirements represent problems for new entrants which resulting in decreasing the threat of new entrants. The last factor to consider in studying entry barriers is the expected level of economies of scale by new entrants. The majority of the players in the juices and dairy products industry in the UAE have been well-established for many years. Most of them have extensive knowledge in what they are doing and have learnt how to reduce production costs throughout the years. As mentioned earlier, because consumers are very sensitive to price changes of the industry products, those companies have been focusing on studying ways to reduce production costs in order to keep up with high profit margins. By doing so, many companies have achieved high levels of economies of scale. Thus, new entrants are expected to achieve economies of scale very quickly in order to keep up with the competition. This factor results in decreasing the threat of new entrants. By looking at all factors we have considered, we can see that there are, more or less, similar numbers of factors that result in increasing and decreasing the threat of new entrants. That being said, we can conclude that the threat of new entrants in the juices and dairy products industry is moderate. In fact, there were no new entrants in the industry in recent years

(2006-2009).

Rivalry among Existing Firms:

As with studying the threat of new entry, there are many factors to be considered when analyzing the level of rivalry among existing firms. The first factor to consider is the number of competitors in the industry. For Lacnor, there are many local and foreign competitors in the

industry, such as: Rabie, Sun quick, Al Marai, Danao, Capri Sun, KDD, Rani, Masafi, Safa, Al

Ain, and many others. This high number of competitors results in increasing the level of rivalry among existing firms. Another factor to be considered in analyzing level of competition is the product characteristics. In general, the products offered by Lacnor and other companies in the industry are, more or less, standard. There are of course many differences in taste and quality; yet, those differences don’t qualify the company products to be considered as unique products.

The standard nature of the products offered results in increasing the rivalry level among existing firms. Another factor that should be considered is the height of exit barriers. Lacnor and other companies operating in the industry have many types of equipment that are specific to their production processes and are hard to be used in other types of productions. This results in increasing the height o exit barriers which leads to increasing the rivalry level among existing firms. Finally, the manufacturing capacity level affects the competitive level in the industry. Mr.

Mohammed Al Atrash, the procurement manager of Lacnor and a member on the Board of Directors, stated that a problem for Lacnor and many other competitors in the industry is the unpredictability of the demand which leads generally to high level of productions that exceed the market demand. Companies would follow competitive strategies to make sure that these products are being sold which would increase the rivalry level among existing firms. All in all, we can say that the rivalry level among existing firms in the industry is very high.

Pressure of Substitutes:

According to Dr. Virginia Bodolica, substitutes are products or services that have different visible or invisible characteristics and satisfy the same exact need of customer. Those substitutes can come from the same or different industries. As simplified as it seems, customers buy juices and dairy products to satisfy their needs for drinking. In order to assess the pressure of substitutes, it is important to estimate the availability of these substitutes. Since consumers need is drinking, there are many available substitutes for juices and dairy products, such as: water, soft drinks, energy drinks, coffee, tea and others. Those products are available all over the places in UAE which results in increasing the pressure of substitutes. Another factor to consider when studying the pressure of substitutes is customers’ switching costs. As mentioned earlier, buyers’ switching costs for juices and dairy products are generally considered to be low which results in increasing the pressure of substitutes. Finally, it is important to estimate price and quality levels of substitutes. The prices of the substitutes mentioned are considered to be fluctuating around the prices of juices and dairy products. Some of the substitutes, such as water, are cheaper, some of them, such as soft drinks, are of similar prices, and others, such as energy drinks, are more expensive. As for quality, within each category of substitutes, products have different quality levels. This is being said, it is hard to estimate the exact impact of price and quality levels of substitutes without having related data regarding to analyze which we lack. Overall, however, we can conclude that the pressure of substitutes is relatively high.

Bargaining Power of Buyers:

There are many factors that should be analyzed when estimating the bargaining power of buyers. One of those factors is the number of buyers buying the company’s product. Although the up-level stores buy high proportions of Lacnor products, there are many of them which results in decreasing the bargaining power of buyers. Another factor to be studied is the ability to integrate backward by the buyers. Although many of up-level stores, such as Carrefour, Spinneys and others produce their own fresh juices, it is generally hard for them to integrate backward and produce UHT long-life juices and dairy products because of the equipments needed as well as the expectation to achieve economies of scales quickly, which is hard to be done with their focus on distributing many other different products. This lack of ability to integrate backward results in decreasing the bargaining power of buyers. In studying buyers’ bargaining power, we would combine two related factors that are important in the analysis, which are: the existence of alternative suppliers and the characteristics of the supplied product. As mentioned earlier, there are many local and foreign juices companies that can supply the buyers with similar products. Although there are small differences in the products offered, they generally tend to be standard products. Both factors combined together result in increasing the bargaining power of buyers. Finally, it is important to analyze if buyers have complete information regarding the seller’s product. According to Mr. Samir Naoura, dealing with many companies had made it easier for up-level stores to have access to information regarding the production costs of companies in the industry, which results in increasing the bargaining power of buyers. In general, the bargaining power of buyers in the industry is moderate.

Bargaining Power of Suppliers:

The last element from Porter’s original five forces model is to analyze the bargaining power of suppliers. There are many factors to be considered in the analysis, one of which is to consider the importance of the supplier’s input to the buyer’s business. It goes without saying that the raw material such as: fruits, milks, water and others are of significant importance to the production process of Lacnor and other companies in the industry. Without those raw materials, there will not be any production. This results in increasing the bargaining power of suppliers. Another factor to be studied is the ability to integrate forward by the suppliers. Unlike distributors, who lack the ability to integrate backward and produce the products, suppliers of fruits and milks are generally more capable of producing juices and dairy products through forward integration. This is because most of those suppliers specialize in getting raw material needed for specific product lines, which makes it easier for them to focus on the production of those products. In fact, many of Lacnor’s suppliers in Indonesia and New Zealand are also producer of UHT juices and dairy products in their home countries. This results in increasing the bargaining power of suppliers. In studying supplier’ bargaining power, one of the factors to be considered is the characteristics of the supplied product. Again, although there are small differences in the products offered, they generally tend to be standard products for which raw material can be found in many places. This generally results in decreasing the bargaining power of suppliers. However, it is important to look at the number of suppliers of raw materials in the industry. There are many local and foreign suppliers that can supply the companies with the raw material needed at different quality and price levels; however, due to weather conditions in the region, many of the raw materials needed are being imported from foreign suppliers. The importance of having available raw materials throughout the year with high quality levels and low transportation costs generally reduces the number of available suppliers to Lacnor and other companies in the industry and results in increasing the bargaining power of buyers. Overall, we can say that the bargaining power of suppliers in the industry is very high.

Relative Power of Other Stakeholders:

The original Porter’s Five Forces Model has been modified to include the relative power of other stakeholders, such as government, creditors, international stakeholders, and complementary products on the industry. We have examined the impact of government control on the industry when analyzing the political section of PESTEL. In this part, our focus is on complementary products. “Complementor is a company or an industry whose product works well with a firm’s product and without which the product would lose much of its value” (Bodolica, 2009). Products such as tea and coffee are considered complementary products for milk. Lacnor also has a tomato paste product line. Tomato paste is an essential ingredient in the kitchen in this part of the world and is used in most traditional foods. Also, it is used in by many restaurants in the production of soups, stews, pastas, and pizzas. Shifts in demand for those products affect the demand level of tomato paste.

Mission vision goals and objectives,

An essential component of any strategy is to identify its mission, vision, goals and

objectives. We obtained the company’s mission and vision statements from the company’s

official website (www.Lacnoruae.com), whereas its goals and objectives were obtained from the

company manual. In this section, we will highlight those components and analyze them briefly.

Mission statement:

“Our mission is to provide a healthy life style to children, youth & adults through a wide

range of premium quality products. We commit to developing our people and acquiring the latest

technology in order to reach a standard of excellence in our organization.”

Mission Statement Analysis:

A successful mission statement should answer the following three questions: “Who is

being satisfied?” “What is being satisfied?” and “How are needs being satisfied?” In analyzing

the mission statement of Lacnor, we find that the answer to the “Who” question is obvious and

appears in the statement: “children, youth and adults.” On the other hand, the answer to the

“What” question is more complex. Instead of specifying the product explicitly by stating that the

company offers juices, drinks or other terms that specify the exact product, the company chooses

to mention “healthy life style” as the product offered. Although we believe that it is a smart idea

to describe the product as being “healthy,” especially that it matches the company’s slogan “Live

Life,” it is important to provide an idea of the exact product offered to avoid confusion. Finally,

the answer to the “How” question appears mainly in the statement “through a wide range of

premium quality products.” “Developing our people” and “Acquiring the latest technology” can

also be considered as answers to the “How” question.

Vision Statement:

“Our vision is to Strengthen and Expand our National Leadership to the Regional and

International Markets.”

Vision Statement Analysis:

A successful vision statement should include three components: position, market, and

product. In analyzing the vision statement of Lacnor, we find the “Leadership” position. In

analyzing the market, we can see the company’s vision in the “Regional and International

Market”. The company fails to include the product in the vision statement; yet, the statement “To

Expand our National Leadership” implies the product is the same as the current one.

Goals & Objectives:

·€ Producing the best quality juices and healthy dairy products.

·€ Reducing the amount of flavors, artificial ingredients and sugars in juices.

·€ Investing in R&D and consumer research for new innovations.

·€ Maintaining constant profit margin in the short-term.

·€ Building the first plant in Oman in 2010.

·€ Achieving workplace diversity through hiring employees from different backgrounds.

·€ Focusing on Corporate Social Responsibility by having at least two donation

campaigns annually.