Recommended
More Related Content
What's hot
What's hot (18)
Similar to Yili Inner Mongolia Expansion Strategy
Similar to Yili Inner Mongolia Expansion Strategy (20)
Recently uploaded
Recently uploaded (20)
Yili Inner Mongolia Expansion Strategy
- 1. Yili Inner Mongolia Group Team 5 - TierOne Consulting - MIB 2 Hangzhou Andreja Miletic| Bijan Nekoie | Kristin Hartlich | Maricarmen Gonzalez | Thabang Sekete
- 2. TierOne Consulting Team Maricarmen Gonzalez Thabang Sekete Kristin Hartlich Andreja Miletic Bijan Nekoie 2
- 3. Agenda Objective & Overview SCQ: Situations | Complications | Question SWOT Analysis Strategic Recommendations Short-term Strategy | Medium-term Strategy Future Considerations & Takeaways 3
- 5. “Our goal is to become one of the Top 20 enterprises in the world dairy industry by 2010, and Top 10 by 2015.” Pan Gang (2007) Chairman and President Yili Inner Mongolia Group 5
- 6. Overview 6
- 7. 70% of Farmers’ income in Inner Mongolia was related to Yili Favorable Climate Conditions “Green” Image of Inner Mongolia Yili Inner Mongolia Group Proximity of Resources 7
- 8. Yili’s Product Mix Overview UHT milk 47 Milk beverage 22 Ice cream 13 Milk powder and other dairy products 12 Yogurts 2 Others % 4 0 10 20 30 40 50 8
- 9. Timeline Small SOE’s joined in Inner Huhhot, Mongolia Yili reorganized into shareholder enterprise: major shareholder municipal government Yili receives “Best Taxpayer” award. RMB 1.3 Billion paid to Huhhot between 1999-2004 Industry dominated by Yili & Mengniu Yili ranked 3rd globally for production volume of over 30 million tons while accounting for US$12.3 billion in revenues Revenues grow 500% from 1992 + IPO in Shanghai – 96.9 Million RMB raised Mengniu is formed from former Yili employee Foundation of Inner Mongolia Mu Quan Yuan Xing Animal Top 20 of Dairy Industry by 2010 Top 10 of Dairy Industry by 2015 Feed UHT processing Organic product research begins 1993 1996 1999 2002 2003 2004 2006 2007 … ...
- 10. Situations | Complications | Question 10
- 11. Situations China Expensive Considered luxury product Milk & Dairy Products Consumption 11 kg Lactose intolerance 18 kg Available only in big cities 25 kg Per Capita 2002 2004 2006 11
- 12. Situations BEFOR E 7-10 Days Technology AFTER Transportation 4-6 Months Adequate Transportation to reach remote areas 12
- 13. Situations Protein energy sources local/imported Silage/substitutes Local/imported Dairy Industry Supply Chain Feed Mill Companies Individual farmers Private farms State-owned farms Milk stations Middleman Group of farmers Cooperatives Own farms Farming bases Processors Dairy Imports Consumers Distributors Retailers/Food Services Home Delivery Consumers
- 14. Situations Coinvest in Farmland “Locking in” Source milk 10 % Exclusive Supply Contract 40 % Contract with Milk-stand Owners 50 %
- 16. Complications China historically not a milk nation Culture Law Consumer’s Distrust in Chinese Milk Product Lactose intolerance Unfavorable Tax & Property Laws Government Regulations Dependence on farmers (no ownership of cows) Resources Manage Channel Relationships No self-sufficiency Competition New market entrants Imports of Milk (international conglomerates) Local conglomerates Core Values Quality and Safety Growth and Innovation Adaptation to International Standards 16
- 17. SWOT Analysis: Strengths Technology and Safety Relationship Management Marketing Customer & Employees 17
- 19. SWOT Analysis: Opportunities China is a growing market for the dairy industry • UHT milk • Baby milk powder Lock-in cooperative management structures Obtain new sources of “green” arable land Expanding business through M&A or JV 19
- 20. SWOT Analysis: Threats Sociological Lactose intolerance Consumer preferences Technological Economical Imitation of technology and production processes Competition from both local players and international conglomerates Increased purchasing power in urban areas Environmental Political Sensitive weather and environment High dependence on government 20
- 21. Question How can Yili increase its revenue to become the Top 20 in the dairy industry by 2010 and Top 10 by 2015, while maintaining its core values and competitive advantage? 21
- 22. Methodology 22
- 23. Linkages Core Values Capabilities Resources Social Corporate Responsibility Quality and Safety Innovation & Growth (“Going Green”) Research & Development Experience in Management Long-term relationships with Farmers R&D in UHT processing Marketing Program Current Contracts Government Influence Processing Plant Market Share & Brand Equity Expected Outcomes 23
- 27. Short-term Strategy Vertical Integration Dividends & Stock Options Incentivization Program Less cash Farmer Lock-in Veterinarian Services Strengthening Relationships with Farmers Incentive options Discounts in Cow Feed Voting Rights in Consortium
- 28. Results of Vertical Integration Core Values ✓ Capabilities ✓ Resources ✓ Expected Outcomes Yili’s supply is secured Long-term relationships with Farmers increases Minimizes the effects of urban migration 28
- 31. Medium-term Strategy Enter Top 10 in Sales $ by 2015 Key Weakness: Competitive Disadvantage due to tax breaks for JV Net Income Figures: Yili vs Mengniu Effective Tax Rate %: Yili vs Mengniu 35.0% $1,800.00 30.0% $1,600.00 25.0% $1,400.00 Inner Mongolia Yili Industrial Group Co., Ltd. $1,200.00 $1,000.00 $800.00 Mengniu Dairy Co. Ltd. $600.00 Inner Mongolia Yili Industrial Group Co., Ltd. 20.0% 15.0% Mengniu Dairy Co. Ltd. 10.0% $400.00 5.0% $200.00 $- 0.0% Dec '05 Dec Dec Dec Dec '06 '07 [E] '08 [E] '09 [E] Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 [E] [E] [E] 31
- 32. JV Agreement Horizontal Integration JV with New Zealand Close proximity Asia Pacific Region Source of arable land and cows Strong perception of safety and high quality products Westland is known for its green processes and R&D Westland is a cooperative based company 32
- 33. Westland JV 35% Tax break before 2012 International Brand Exposure Increase Brand Awareness & Equity in China Tax reduction reinvested into Marketing, Tech & Land Advantages Boost in Revenues by 50% & Resources by 25% Access to R&D Technology, Training, Land & Cows Import Westland products (cheaper cost) Milk Powder & Other Dairy Products Yoghurt & Others Streamlining Yili’s production Reducing Yili’s COGS by RMB 2.5bn 33
- 34. JV Product Mix Yili Product Mix Yili & WestLand Product Mix UHT Milk (141M tons) 4% 12% 18% Ice Cream (39M tons) UHT Milk Yoghurt (600k tons) 47% Milk Beverage 47% 13% Milk Beverage (6.6M tons) 2% 13% Ice Cream Milk Powder & Soy (3.6M tons) 22% Milk Powder, Soy, Yoghurt & Others 22% Others (1.2M tons) 34
- 35. Results of Horizontal Integration Core Values ✓ Capabilities ✓ Resources ✓ Expected Outcomes 35% Tax Break Focus on the UHT production and R&D COGS savings from imports Marketing program expansion 35
- 37. Forecasted Timeline Tainted Milk Scandal milk, infant formula, animal feed affected. 11 countries completely halt foreign, Chinese imports Top 20 of Dairy Industry by 2010 Top 10 of Dairy Industry by 2015 Yili sole-sponsors Beijing Olympics: 100 million RMB + seven additional plants. Tax benefits are lifted from foreign and domestic joint ventures, given grace period to transition to appropriate tax bracket $214 million to acquire Oeania Dairy, NZ Overseas R&D center in Wageningen University, Netherlands Strategic Partnership with Italian Sterilgarda Alimenti Spa, acquiring filtration technology creating a new liquid milk product Global Ranking: 12 Agreement with Dairy Farmers of America 2004 2006 2007 2008 2012 2013 2014
- 38. Takeaways 38
- 40. Takeaways “We have a responsibility to help the development of the industry and focus more on green production and brand development with environmental protection. We want to make sure all parties – consumers, farmers, and government work together.” Pan Gang (2007) Chairman and President Yili Inner Mongolia Group Top 20 in 2010 ✓ Top 10 in 2015 ✓ 40
- 42. Appendix 42
- 43. Buying Cows? − Imported nearly 250,000 live heifers. Spent more than $250 million on 100,000 foreign heifers. Live hog imports will reach 12,000 head. Net profit is 14 times larger than from growing 1 acre of corn. Breeding dairy cows are expected to recover four per cent to 75,000 head. + 43
- 44. Cows: Yes or No? 44
- 45. Milk Scandal 2002 EU bans imports from China Imports halted. China’s system to control residues of veterinary medicines in farmed animals to be too lax. Animal imports banned. 2004 Avian Flu Avian Flu + Foot in mouth disease causes EU to halt imports of poultry, pork, mutton, beef and dairy products from China. 2008 Chinese milk scandal Melamine incidence to appear to have a higher protein content. 11 countries stop all imports of Chinese dairy products completely. 2009 Leather milk Leather-hydrolyzed protein, boosts protein-content ratings of milk. 2013 Fonterra scandal Bacterial presence in unsterilized pipes used to move whey during the production process. Fonterra recalls all products 45
- 46. JV Financial Implications 18% of Yili products now produced by Westland Estimated COGS reduction of RMB2.5bn Yili Income Statement 18,000.00 Yili COGS comparison JV expected effects Sales 16,000.00 14,000.00 Cost of Goods Sold (COGS) incl. D&A 14,000.00 12,000.00 Gross Income 12,000.00 10,000.00 SG&A Expense 16,000.00 10,000.00 8,000.00 8,000.00 EBIT (Operating Income) 6,000.00 Income Taxes 4,000.00 Net Income 2,000.00 0.00 Expon. (Sales) Dec '04 Dec '05 Dec '06 Cost of Goods Sold (COGS) incl. D&A 6,000.00 COGS incl D&A excl. 18% Production Cost 4,000.00 2,000.00 0.00 Dec '07 46