Competitive Products and Pricing Pressures
Because the company exists within a very competitive industry, the ability of its products to survive the market changes very according to which level of competition is facing the product. If a product faces significant changes in its relationship with major customers, financial contribution of this particular product could be significantly influenced. Furthermore, there is a tendency of collaborating when facing o0verwhelming challenges. As competitors are collaborating, they would obtain more strength to lower their prices. This could harm Heinz’s profit considerably. II. 2.
2. Economic and Political Conditions of Foreign Markets Because of the globalize nature of the business, Heinz performance is significantly influenced by factors such as import and export restriction, foreign ownership regulations, fluctuation of exchange rates, etc. Furthermore, governmental regulations in local or foreign market can also significantly influence Heinz’s businesses. Regulations like food and drugs laws, environmental laws, taxation regulations and other specific rules can pose as obstacles for Heinz’s business development (‘HJ Heinz Annual Report’, 2004). III.
2. 3. Cost Level Increase and Availability of Raw Materials As elaborated previously, the company deals with various raw materials like fruits, vegetables and dairy products. Thus, the price of such commodity contributes significantly to the production costs of
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Heinz uses transportation facilities to transport raw materials to the production facility, to deliver products from one warehouse to another and to deliver finished products. Packaging also involves some portion of transportation activities. Thus, fuels costs have a considerable contribution to its production costs. Fuel costs changes because of several factors including government regulations and fluctuations of oil prices. Analysts indicated that Heinz should have sufficient hedging strategies to avoid adverse financial effects due to fuel availability issue (‘HJ Heinz Annual Report’, 2004).
III. 2. 5. Labor Costs and Employee-Related Expenses As mentioned previously, the company is currently employing more than 36,000 managers and workers around the globe. Thus, employee related costs like: labor costs, pensions, benefits and insurances are also important factors that affect corporate costs structure. Factors that can affect these employee-related costs are increasing healthcare costs, government regulations on minimum wage and employee benefits, the prevalence of labor unions (‘HJ Heinz Annual Report’, 2004).
III. 4. 6. Integration Risks The company often collaborates with partners and suppliers in order to gain strength in the market and to enhance product diversity. However, integration process itself contains significant amount of risk due to political, economic and cultural complications. The failure to address such issues effectively and maintain a harmonic integration could disrupt the profit making processes after the collaboration take place. IV. NAFTA IV. 1. Background of the Agreement
NAFTA is a trade bloc that was established in 1993. The regional agreement came into effect on January 1994. In short it contains regulations that facilitate cross border trade activities between countries in the North American continent (the United States, Canada and Mexico). The set of regulations called for elimination of duties and tariffs in a gradual manner. The joint government decided that they will have eliminated most of the trade barriers and achieve the goal of the agreement in 14 years after the agreement was signed.
Besides eliminating tariffs and duties, the agreement also contains clauses that demands elimination of specific trade restrictions in several sectors like automotive, agriculture, etc. The joint government also agrees on several clauses regarding property rights protection, worker and environmental protection and several investment restrictions. Many believed that NAFTA is a union similar to the European Union with their single currency. It is actually quite different.
In the process of facilitating trade affairs between the countries, European Union created a supranational governmental body, which is designed to be superior to national authorities. NAFTA on the other hand, does not. While the European Union depends on this supranational body to regulate trade and businesses, NAFTA only depends on international trade rules to regulate trade activities between the countries involved. IV. 2. NAFTA Effects The overall effects of the agreement have been positive for the members who signed the agreement. However, many believed that the effects of NAFTA are far from expectations.
The economic converge that was the initial goal of the agreement will hardly ever be achieved, especially with regards of the significantly different economic structure between the two countries. Furthermore, the second promised achievement, which is to significantly reduce poverty rate, is also left unachieved. There are several reasons that created this negative view of the results, however, some indicated that in order to obtain further benefit from the agreement, Mexico should have more educational infrastructure and promote innovation more aggressively in the first place.