Global Mind Commodities Trading Company’s Strategic Marketing

Sugar is one of the most basic commodities used in every household around the globe. Moreover, the widespread consumption of fast food and sugar-rich products, including chocolate and sugary drinks, has pushed the demand for sugar higher over the past decades. Hence, the sugar trading industry is believed to be rather stable and profitable. Countries of South America, mainly Brazil, have been dominating the global sugar industry through exports. However, in recent years, there has been a slight shift in sugar production to Asia, making Asian countries, such as China and India, some of the most prominent sugar producers and exporters. Smaller Asian countries have been struggling to keep up with competition and earn a higher share in the Asian sugar market. This also applies to Singapore, which is home to a sugar-focused, commodity trading company Global Mind Commodities Trading Pte Ltd (GMC). The present report will seek to analyze the Asian sugar industry, focusing on how the current conditions affect the standards in strategic marketing. Then, the report will perform a company analysis of GMC to compare it against these standards. Lastly, the paper will also seek to provide recommendations for various stakeholders working in the Asian sugar industry.

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Industry Analysis

Background

The Asian sugar industry has been growing along with the global demand for sugar. In the recent decade, the size of the Asian sugar industry has become comparable to that of South America, with Asian countries producing about 40% of all the sugar produced in the world (Solomon & Li, 2016). The two key players in the industry are India and China, with an annual production volume of 26 MT and 10 MT, respectively. The share of the Asian sugar producers in the global sugar exports remains rather low, at 12%; however, Asian nations still account for around 60% of global sugar imports, and this value is projected to increase further (Solomon & Li, 2016). Under these circumstances, the Asian sugar industry can be considered highly competitive, although there is still space for smaller producers.

Supply and Demand Considerations

Sugar is considered to be among the basic commodities, so the demand for this good is price inelastic. However, there are still other considerations that Asian sugar industry players have to take into account when it comes to sustaining demand. First of all, the global sugar market moved into a deficit in 2015, meaning that the volume of sugar produced is not enough to satisfy the growing demand. Orive (2017) estimates the global sugar deficit to be 6.5 million tonnes in 2017. In Asia, the deficit is even more prominent and is estimated to reach almost 10 million tonnes by 2020 (Viet Nam News, 2019). This result is mainly due to the weather conditions and their impact on production volumes in India and China.

Secondly, the decrease in demand due to Asian government initiatives, and the increased availability of alternative sweeteners could balance the deficit. For instance, Iwamoto (2019) reports that governments in various Asian countries are planning to increase taxes on various sugar-rich products, leading to lower consumption of these products by the public. This condition will likely affect sugar producers working in the B2B segment, since the decrease in sales will prompt companies to cut costs on supplies, including sugar.

Thirdly, there are also some global trends influencing the supply of sugar in the international market. The rising costs of sugar production and the slumping prices could affect the supply by forcing some players out of the global market (Orive, 2017). As the Asian sugar industry is still growing, these changes will not have such a significant effect on it, but the companies working in this sector should still be wary of their capacity to satisfy the demand in these conditions.

Industry Standards in Strategic Marketing

To identify strategic marketing standards in the Asian sugar industry, it would be beneficial to perform a SWOT analysis, focusing on the key players. Firstly, the primary strength of the industry and its key players is the relatively stable demand for sugar both among consumers and among businesses globally. In today’s grocery stores and restaurants, the vast share of products is made with added sugar. Popular products that are found in households all over the globe, such as cereal, chocolate, ice cream, and baked goods, also contain sugar. Moreover, players in the Asian sugar industry, as well as in the global sugar market, have established and reliable distribution chains, which means that they usually sell all of the sugar produced and rarely face losses.

Secondly, the industry’s main weakness is that the production of sugar depends on weather conditions, and is thus somewhat unpredictable. Deficits in sugar production lead directly to limited profits, thus affecting the opportunities for growth in the Asian sugar industry. Another weakness of the industry and its key players in the high dependence on regulatory changes and market trends. For example, as can be seen above, the increased taxation on just one type of product containing sugar is likely to impact the profitability of sugar producers negatively. Additionally, the global trends in a healthy lifestyle and increased pressure from healthcare institutions have caused many people to switch to artificial sweeteners, which also influenced global sugar consumption in 2007-2010 and 2012-2014. The dependency of the Asian sugar industry on these variables leads directly to the key threats faced by the players. On the one hand, there is a threat of a gradual decrease in demand in the B2C sector due to health concerns and government initiatives. On the other hand, sugar producers are also threatened in the B2B sector, as these changes affect their main buyers.

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Still, in this complex environment, there are some opportunities. The primary chance for increasing profits lies in product diversification. While most companies focus on producing refined sugar, other types of sugar could increase in popularity in the future. For instance, Viet Nam News (2019) mentions the development of low glycemic brown sugar. Given that the health concerns associated with sugar stem primarily from the high glycemic value of refined white sugar, diversifying the product range to include healthier options could be a profitable strategic move. In addition, companies need to maintain a broad range of distribution chains. This would help to decrease the threat associated with government regulations. For example, if a company only supplies sugar to large producers of sugary snacks and drinks, it is likely to be affected by government regulations significantly (Iwamoto, 2019). Hence, product diversification and distribution chain development are the two main goals for companies in the Asian business sector concerning strategic marketing.

Company Analysis

GMC is based in Singapore, which means that the company operates in the Asian sugar industry. The company’s location is favorable in terms of future development, since the commodity trading industry in Singapore is expanding rapidly, and the country is likely to become one of the world’s biggest commodity trading hubs shortly (Min, 2017). However, at the moment, the sugar trading industry in Singapore is rather small, and it is further affected by the government’s efforts to reduce sugar consumption among citizens (Cheang, 2018). Hence, GMC focuses on exporting sugar to other countries, including China, Thailand, Bangladesh, and others, and operates primarily in the B2B segment. To grow its market share, the company needs powerful strategic marketing. Three separate strategic marketing tools will be used to analyze the company’s current situation: the BCG Matrix, Product Life Cycle, and Porter’s Five Forces.

Boston Consulting Group Matrix

The portfolio matrix, which has been developed by the Boston Consulting Group, is a useful instrument for analyzing the company’s products. According to Tomczak, Reinecke, and Kuss (2017), the BCG Matrix includes two domains: market growth and relative market share. Products are characterized as having either high or low market share and a high or low potential for market growth. The two main products sold by the company are raw sugar and refined sugar, with the respective annual sales volume of 50-100 thousand tonnes and 200 thousand tonnes. Both products can be placed in the “cash cows” category since there is a low market growth for both refined and raw sugar, and the company has a medium market share that grows steadily.

Focusing on products that are “cash cows” has many benefits for GMC. First of all, it allows the company to secure its profits and minimize the risk of losses that would come with selling a new product without an established market. Secondly, the company also enjoys reliable distribution chains, which contributes to its financial security. For example, GMC sells sugar to local production plants of large companies, including Nestle and Coca-Cola. This is a generally profitable line of business, and it would allow GMC to develop its market share further. However, there are also some limitations to this strategy due to the low market growth. The lack of product diversification and the focus on the market with low growth, in this case, means that the company has fewer opportunities to become a market leader.

Product Life Cycle

The product life cycle offers another useful way of looking at the company’s products. There are four stages in the classic product life cycle: launch, growth, maturity, and decline (Tomczak et al., 2017). Each stage is characterized by changes in sales and profits, with growth and maturity stages being the most profitable. Profits begin to decline towards the end of the maturity stage before the product is substituted by alternatives and moves into the declining stage (Tomczak et al., 2017). Based on the responses gathered from the company, the current position of its core products (raw and refined sugar) is in the growth or maturity phase. However, when other industry factors are taken into account, it becomes evident that both products have reached the maturity stage long ago. Although it is unlikely that there will be a major decline in sugar sales in the next few years, the demand is growing at a very small pace (Orive, 2017). In addition to the slumping prices on sugar and the rising production costs, this means that the profits will most likely start to decline for most large players soon.

Porter’s Five Forces

Porter’s Five Forces represent a tool for analyzing the market conditions to evaluate the competitive landscape. The model implies assessing five factors influencing the selected market: the threat of new entrants the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and competitive rivalry (Alsem, 2019). When applied to GMC, the model indicates that the competitive landscape is tough for medium-sized businesses.

The threat of new entrants in the Asian sugar industry is rather low, but more sugar traders may emerge in Singapore due to benefits associated with free trade ports and reduced taxes for export. This has been noted by GMC as one of the key reasons for the company’s current geographical positioning. The bargaining power of suppliers in Singapore, however, is rather high, given that there are few sugar plantations in the country due to its small size. Given the rise in sugar production costs and the instability of production volumes due to weather conditions, this might affect the company’s buying power if suppliers choose to raise prices.

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The bargaining power of buyers is also relatively high, particularly in the B2B segment, which is the primary market of GMC. Large companies with high purchase volumes, including Nestle and Coca-Cola, have significant bargaining power due to the high availability of other sugar suppliers. This threat is somewhat mediated by the low variation in sugar prices. However, there is a need for GMC to offer more value for money to sustain competition from its larger competitors, such as Czarnikow, RCMA, and CJ. The company does this by offering pricing services and strengthening its supply chain to improve the quality of products.

Lastly, the threat of substitute products at the moment is also rather significant. Artificial sweeteners are becoming more and more popular each year, and other types of sugar are considered to be healthier and thus also gain popularity at a steady pace. Together with the other factors, this creates a highly competitive landscape that is particularly threatening for medium-sized enterprises, such as GMC.

Comparison with Industry Standards in Strategic Marketing

The analysis of the Asian sugar industry showed that there are two strategic marketing requirements that companies have to follow to achieve a favorable competitive position. Firstly, companies need to aim for the diversification of sugar products to be ready for potential decreases in demand and prices for refined sugar. GMC somewhat meets this requirement by including raw sugar in its portfolio. The company’s reliance on raw sugar might be beneficial because it increases the portfolio of potential buyers. For instance, if higher taxes on sugary drinks and snacks are introduced, the company will be able to find other buyers for raw sugar even if its refined sugar sales drop. Nevertheless, in the face of a high threat of substitute products, such as artificial sweeteners and healthier sugar options, the company still needs to diversify its range of sugar products to meet the demand and secure its position in the market. For instance, introducing brown sugar and other alternative sugar products would likely help it to increase market share and gain more buyers.

Secondly, companies in the Asian sugar industry also need to develop variability in terms of distribution chains. Focusing on a single market segment has helped GMC to raise profits while putting the company in a dependent position. Should its primary customers, such as Nestle and Coca-Cola, decrease prices or purchase volumes, the company will face significant losses. Therefore, it would be beneficial from the strategic marketing viewpoint to develop the distribution chain further and to start selling sugar to other types of buyers, including supermarkets, small grocery chains, and other businesses in the sector. This would help to reduce the dependency on large companies, thus preventing the company from facing losses due to increased taxes and other government initiatives.

Conclusions and Recommendations

Based on the information provided in the report, the Asian sugar industry is promising yet highly risky. Companies operating in this industry need to use strategic marketing tools consistently to assess the environment, monitor the risks, and select development strategies. The case analysis allows providing six important recommendations for suppliers trading sugar in the Asian sugar industry. The first recommendation is to monitor market changes consistently to update the profile of opportunities and threats in the industry (Tomczak et al., 2017). This can help suppliers of sugar to avoid significant losses due to new regulations, weather conditions, or changes in demand and pricing (Orive, 2017; Tomczak et al., 2017). The second recommendation is to maintain a portfolio of primary producers to stabilize the costs. Given that the product prices of sugar are on the rise and are heavily impacted by weather conditions, this would help to control the costs by switching to lower-priced producers in case of changes (Orive, 2017; Viet Nam News, 2019).

The third recommendation is to engage in product diversification to increase the product portfolio. Contemporary technologies have led to the development of new sweeteners and types of sugar, which could earn companies a higher market share (Iwamoto, 2019; Viet Nam News, 2019). Investing in expanding the product portfolio will make companies less sensitive to changes in demand for and pricing of refined sugar, as they will be able to focus on selling alternative products.

In addition to diversifying products, suppliers must increase the flexibility and variability of their distribution chain by adding more distribution channels and finding new clients. Following this recommendation would help companies to reduce their dependence on a few major buyers, who are often subject to government regulations (Iwamoto, 2019). Moreover, diversified distribution channels allow companies to generate more profits and to be more flexible in terms of strategy, thus responding better to changes in the market (Tomczak et al., 2017). The final two recommendations are strengthening value propositions continuously and using evidence-based tools for attracting and retaining clients. On the one hand, a good value proposition is crucial for companies to keep large clients in a highly competitive environment such as sugar trading (Alsem, 2019). On the other hand, increasing the client base continuously would help to secure the sales in case of any significant market changes. It would also decrease the bargaining power of a single buyer, thus giving companies more control over prices for their sugar products (Alsem, 2019).

It is expected that following the proposed recommendations will help sugar suppliers in the Asian sugar industry to remain profitable despite the challenges presented by this market. Moreover, it will assist them in identifying opportunities for increasing the market share and earning a favorable competitive position. Still, consistent practice in strategic management would be necessary to secure these benefits in the long term and profit from future changes in the market.

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References

Alsem, K. J. (2019). Applied strategic marketing: A step by step approach. London, UK: Routledge.

Cheang, B. (2018). Banning sugar products in Singapore may not be the best idea. Singapore Business Review. Web.

Iwamoto, K. (2019). Southeast Asian sugar taxes: Bitter pills for better health. Nikkei Asian Review. Web.

Min, C. Y. (2017). S’pore ‘can be world’s biggest commodity trading hub’. The Straits Times. Web.

Orive, J. (2017). Global sugar and sweetener market after 2017. Web.

Solomon, S., & Li, Y. R. (2016). The sugar industry of Asian Region. Sugar Tech, 18(6), 557-558.

Tomczak, T., Reinecke, S., & Kuss, A. (2017). Strategic marketing: Market-oriented corporate and business unit planning. Wiesbaden, Germany: Springer.

Viet Nam News. (2019). Southeast Asia sugar industry discusses strategies as global deficit looms. Asia News Network. Web.

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StudyCorgi. (2021, August 25). Global Mind Commodities Trading Company’s Strategic Marketing. Retrieved from https://studycorgi.com/global-mind-commodities-trading-companys-strategic-marketing/

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