TERM PROJECT--IBSTERM PROJECT--IBS

Submitted by: Group No.-07Vivek SharmaSudhanshu TanejaKhushwinderVineet ChadhaKaushal Pandey

Points to be covered in the TERM PROJECT (1) A brief over view for the importance of subject/topic related. (2) Company’s Overview (3) “STRATEGIC THRUST” adopted by Olam Export (4) Financial Target (5 ) Sourcing Of Competitive Advantage, Strategy Elements, Value-Adding Activities, Competitive Strategy & Olam’s Approach to Growth. (6) What are the three most important generalizable lessons can we derive from the global strategy

of this company (Olam)? (7) What are the three most salient

recommendations Olam would make to the CEO of this company?

(1)A brief over view for the importance of subject/topic related.We have selected Agro-Commodity for the term

project due to few reasons which are as below.(a) In agro-commodity business, there are lot of

variation in International Business Strategies because food is very basic commodity for the world community.

(b) There are Lot of precariousness or volatility in Agro-commodity business.

(c) A very dynamic Global Outsourcing takes place in gigantic-way due to very cost sensitiveness.

Hence due to above reasons we(Group-07) decided

to go with Olam Export (I) Ltd which is one of the largest Global Supply Chain ,Processor of

agricultural products & food ingredients.

(2) Company’s Overview

(2) Company’s Overview (in contn.)

(3) “STRATEGIC THRUST” adopted by Olam ExportThere are five key strategic thrusts that Olam want to pursue as a result:

Pursue integrated global value chain leadership; Selectively expand into value chain adjacencies; Optimize and extract full value from the core; Grow into new adjacent businesses building on the

latent assets and capabilities that we have; Downsize/exit/prune unattractive businesses, origins,

profit centers and activities. Olam map and prioritize their various businesses

based on their historical financial performance, their current competitive position and the addressable size of the prize to determine which of these businesses will fall into each of these five strategic thrusts.

(4) Financial Target

Financial Target—Yr.2011

(in S$ million)

Y2010FY FY2009

% Increase

Financial Target-2011

Sales Volume (MT) 7,006,478 5,720,640 22.5

9108421

Sales Value 10,455.00

8,587.90

21.7

13486

Net Contribution (NC) 901.09 607.2 48.4 1369.6

NC/ton 129 106 21.1 163.8

Profit Before Tax (PBT) 420.24 258 62.9 705.6

Profit After Tax (PAT) 359.73593 7

252.025 42.742 7 528.8

Exceptional Gains 87.68 69.8 25.6 114.9

Profit After Tax (PAT) (excluding exceptional gains)

272.12 182.2 49.3 418.88

PAT margin (%) (excluding exceptional gains)

2.60% 2.10%

23.80% 3.30%

PAT margin (%) 3.40%2.90%

17.24% 4.18%

(5)Sourcing Of Competitive Advantage, Strategy Elements, Value-Adding Activities, Competitive Strategy & Approach For Growth

HERITAGE Since the establishment in 1989, Olam has remained focused in a

single commodity asset class – the agricultural complex. Olam have grown by taking advantage of adjacent opportunities in the agricultural complex and have evolved from a single-product, single-country company in 1989, to a multi-product, multi-national, integrated supply chain manager today. Olam have consistently exceeded the expectations of all our stakeholders by leveraging their resources, including people, knowledge, capabilities, skill sets, systems and physical assets, to create a competitive advantage which has helped them to grow profitably and to build leadership positions

Olam are today a leading global supply chain manager and processor of agricultural products and food ingredients from farm to factory gate. Olam’s 10,000 employees worldwide operate an integrated supply chain for 20 products in 64 countries, delivering these products to over 10,000 customers globally. Olam are today a global leader in many of these businesses, including Cashew, Almond, Spices & Dehydrates, Sesame, Cocoa, Coffee, Rice, Cotton, Teak as well as Palm and Rubber in west Africa. Olam are suppliers to many of the world's most prominent brands offering them reliability, consistency, trust, traceability, and other value added services. This has helped us earn a reputation as the "brand behind the brands".

OLAM BUSINESS & GROWTH STRATEGY

OLAM BUSINESS & GROWTH STRATEGY “The Agri-business Value Chain”

The agri-business value chain consists of four parts:

(a) An Upstream piece which includes plantations, farming, forest concessions, dairy farming, and agri-inputs; Olam are today integrated selectively upstream into plantations of palm and rubber in west Africa, coffee in Laos and almond orchards in Australia, dairy farming in Uruguay, farming of peanuts in Argentina, rice in Nigeria and Mozambique, and forestry concessions in tropical hardwoods in Gabon. Olam plan to selectively integrate upstream into plantations of cashew and cocoa, farming of select annual crops like tomatoes, onions, wheat and stevia, as well as into agri-inputs, such as fertilizer distribution and manufacturing in certain countries. Olam will only target investing upstream in products and geographies where Olam can produce these crops cheaper and better on a sustainable basis and where there are clearly excess returns to be made.

(b) Olam’s core--A supply chain piece ; Over the 20 years that Olam have been in business.

Olam have developed a strong core as a leading global supply chain management of agricultural raw materials and food ingredients. Olam core business consists of five key facets:

Sourcing/origination: Farm gate cross-sourcing model, built a valuable franchise of over 200,000 grower and supplier relationships. At the heart of Olam business is their origination activity, where Olam’s knowledge and expertise assist farmers and collectors and provide Olam with a consistent supply of good quality produce with higher margin.

Primary Processing: Converting agri-raw materials into intermediate products like Olam processing activities range from processing and grading of coffee, grinding of cocoa beans, shelling and blanching of cashews and other edible nuts, ginning of seed cotton to cotton lint, to sawing of timber logs to sawn timber and milling and polishing of rice. All these tasks are value added activities.

Logistics: Inland and marine logistics; Olam's infrastructure in the origins facilitates the

efficient export and import of their products. Olam has the ability to manage the multi-modal transportation requirements of our businesses. This ensures that Olam remain competitive and flexible to meet their client's requirements, no matter how complex they are.

Risk Management: Capturing, measuring and managing risk at a transactional level;

Trading/Marketing: Olam providing customized marketing solutions and services to over 10,000 customers globally. Olam extensive network and integration within the supply chain enables them to provide their customers with timely, consistent and reliable supplies as Olamll as up-to-date information on the world markets. This has helped Olam forge privileged relationships with the end-users to whom they provide various value added services and customized solutions.

(c) A midstream value-added processing piece;

Midstream is value-added, secondary processing, converting intermediate products into ingredient quality products. Today, Olam participate in midstream processing of peanuts into peanut ingredients and spices into dehydrates in the US, soluble coffee manufacturing in Vietnam, Cocoa processing in Nigeria, sugar milling and refining in India and Indonesia respectively, and palm oil refining in west Africa.

Olam also plan to invest further selectively in value-added midstream processing, including cocoa grinding in the origins, tomato paste manufacturing, wheat milling, sugar milling and refining, palm oil refining and almond processing. Like with upstream investments, Olam invest in midstream processing where excess return opportunities exist.

(d) Downstream contract manufacturing, private label

manufacturing and distribution piece. Downstream activities relate to contract manufacturing and private labeling activities as Olamll as distribution of food staples and packaged foods in consuming countries via a network of wholesalers and retailers. Olam target markets for downstream activities are Russia, South Africa and Olamst Africa.

Sourcing Of Competitive Advantage Olam Competitive Advantage

Building Barriers to Entry: (a) Origin Capabilities Olam possess strong origination skills as Olam buy from the lowest level of aggregation possible directly in the producing countries, process such produce into intermediate products, manage the logistics and various risks in these countries and export products of a consistent and reliable standard on time to customers. Olam have a direct presence in all key producing origins that account for at least 80% of world production of the various agricultural products. Our farm gate sourcing allows us to exercise control in the supply chain and appropriate higher value. Cross-sourcing of multiple products in each country provides us with cost advantage and scalability. Our field operating systems have been developed to manage the supply chain complexities in challenging origins. In addition, Olam have put in place highly experienced teams on the ground at the origins with strong local knowledge of the operational conditions as well as strong relationships with local buying agents and growers. Olam believe these are the critical factors behind their origination capabilities, which has differentiated them from their competitors, particularly the global trade houses, who normally operate from the port cities and commercial capitals in the producing countries and rarely extend their operations to the farm gate. Most of the Competitors would buy from port-based suppliers, agents and origin exporters, rather than set up a farm gate buying model given the complexities involved in upcountry operations.

Building Barriers to Entry: (b) Strong Market Capabilities

In all of their operations, Olam have established strong relationships with end-customers including multinational corporations, which own internationally recognized brands. Olam believe that these strong relationships are built on their leading global market positions, for example Olam are:

The largest supplier of Cashew and Sesame in the world;

The largest supplier of Robusta coffee and one of the top five supplier of Arabica coffee in the world;

The largest supplier of Cocoa beans worldwide; Amongst the top three global players in Rice; One of the top three suppliers of Cotton in the

world; and One of the largest suppliers of Teak in the world.

Building Barriers to Entry: (c )Unique Competitive Position :-----Olam unique competitive position stems from their capacity to combine origination and sourcing capabilities in the producing countries with trading, marketing, risk management capabilities in the destination markets concurrently.

At the sourcing end, Olam seek to differentiate themselves by out-regaining their competitors by buying at the lowest level of aggregation possible, right at the farm gate. This entails buying from distributed collection points upcountry at the point of arrival of these products, often under very challenging conditions. At the marketing end, Olam seek to differentiate themselves by offering various value-added services to their customers.

Olam continue to extend their competitive advantage by replicating their business model across new products, geographies and markets.

Porter’s Five ForcesCompetitive Position

Ready Availability

Of Substitute

Intense Rivalry Among Peers

Low Bargaining Power Of Suppliers

High Barriers To

Entry

High Bargaining Power Of Buyers Olam

International

Olam Approach to Growth

Olam’s Approach For Growth Their approach over the next six years (till 2015) is to:

Consolidate the core by focusing and recognizing its full potential;

Identify the hidden assets, skills and capabilities that Olam have acquired over the last 20 years and explore how these could be leveraged;

Expand by exploiting the power of the repeatable adjacency expansion formula;

Refine the strategy by following profit pools as a direction finder for their future investments in different parts of the agri-business value chain.

Based on the above analysis, for each of their businesses, they map the profit pool to determine the distribution of the profit pool between the upstream, Olam core, midstream and downstream segments. Having determined the size of opportunity in each of these segments, Olam look at their winnability in selectively integrating into the more attractive parts of the profit pool where excess return opportunities exist. There are five key strategic thrusts that Olam want to pursue as a result:

(i) Pursue integrated global value chain leadership; (ii) Selectively expand into value chain adjacencies; (iii) Optimize and extract full value from the core; (iv) Grow into new adjacent businesses building on the latent assets and capabilities that Olam has; (v) Downsize/exit unattractive businesses, origins, profit centres and activities.

Here Olam map and prioritize their various businesses based on their historical financial performance, their current competitive position and the addressable size of the prize determine which of these businesses will fall into each of these five strategic thrusts.

(6) What are the three most important generalizable lessons can we derive from the global strategy of this company (Olam)? Three most important lesson are as below,(a) Here Olam map and prioritize their various

businesses based on their historical financial performance, their current competitive position and the addressable size of the prize determine.

(b) Olam continue to extend their competitive advantage by replicating their business model across new products, geographies and markets.

(c) Very effective & extensive vertical & horizontal Integration at International level. Like Contract forming, Fertilizer Production with M&A etc.

(7) What are the two most salient recommendations Olam would make to the CEO of this company? We can suggest few points to CEO of the Olam

Export (I) Ltd. Which are as below,(a) OIam is not promoting for pulses business & in

the exit mode. Here we can suggest that Pulses business can be very attractive thru some value based marketing strategies. For example:- due to steep price increase high protein Chicken & Meat can be replaced by Pulses (yellow & various others daal) which contain high protein & very much cost effective as well.

(b) Olam can open the exchange office in Kerela for the various spices purchase. Due to direct exchange, former or grower can gave a direct deal & the higher profitability on both the side i.e Olam as well as Grower of Spices. Here there will be elimination of middle man due to which escalation in the prices of the prices.

THANK YOU