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J. M. Smucker Company: External Environment Analysis

Executive summary

External environment analysis helps identify the opportunities and threats prevailing outside the organization. The company J. M. Smucker is headquartered in Ohio, in North America; it was established in 1897. It is a globally known company that manufactures and distributes food products mainly related to desert items, spreads of bread, ice cream toppings, jams and jellies, and preserves, etc. It is also the distributor of honey, peanut butter, packaged coffee, canned condensed milk, etc. Porte- 5 forces model helps analyze the industry like PEST analysis helps identify the mega environment comprised to the industry. SWOT-analysis helps identify the strength, weaknesses, opportunities, and threats prevailing in J.M. Smucker to make good strategic decisions.

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Introduction

Every organization is comprised of both internal and external environments. The internal environment includes those factors which have a direct impact that we can see within the organization, for example, mission, vision, etc. The external environment includes those factors that we can see outside the organization, for example, culture, entry of new competitors, etc. The NAICS code relating to fruits and vegetable canning is 311421.

Scanning of the environment helps the organization identify the opportunities and threats in the external environment and strengths and weaknesses in the internal environment of the organization. Both Porter 5-Forces Model and PEST Analysis help know the organization in detail so that it helps make strategy formulation.

Industry Analysis

Porter 5-Forces Model

Porter 5-Forces Model comprises 5 elements. Porter 5-Forces Model helps find out how the external factors affect the nature of the industry as well as how the factors inside the organization affect the overall operation of the organization. The figure below shows the relationship between the 5 forces in the Porter 5-Forces Model.

Porter's five competitive forces
Figure 1: Porter’s five competitive forces

The threat of New Entrants: New Entrants in the market increase competition and the profitability of the industry is reduced. During the introduction and growth stage of the industry, the new entry of firms helps to expand the business. At this time, competition is less; profit is also less; but at the stage of maturity, the situation of the market includes entry obstruction, technological upgrading, high capital power, and all. From this point of view, competitive rivalry arises among firms due to the following reasons – several competitors, rate of business expansion, product modification, permanent price, capability, exit barriers, customer loyalty to established brands, absolute cost advantages, Government policies, etc.

The threat of substitute products Substitute products also create rivalry among firms. Substitute product looks different from the main product but it satisfies the need of the customer like the main product. If the switching cost of the product is low, then the demand for the substitute product becomes high.

The bargaining power of buyers It also affects the outcome of the business in the market. It means the caliber of the buyer to force the industry to reduce the price of the product, or for getting a good quality product, etc. This will lead to competition among firms. Power of the buyers exists if a large portion of the product is purchased by the buyers; switching cost of the product is low, substitute products are available.

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The bargaining power of suppliersBargaining power of suppliers helps earn more profit. It means suppliers’ power to force the buyer to purchase a product at a higher price. This will happen in the market if substitute products are not easily available; switching cost is high; supplier of the product enjoys domination etc. Competitive rivalry within the industry – It is mainly due to the above 4 forces. All these things lead to rivalry among the firms.

PEST Analysis

A PEST Framework of Mega environment Analysis of J. M. Smucker’s is an important tool for analyzing the problems of business.

PEST Analysis 

Political factors are the factors that are directly related to the government of the place, like labor laws; trade restrictions, etc. North America has a free trade agreement involving Canada & Mexico; so it is good for J. M. Smucker because the company mainly focuses on the markets of Canada and North America. The firm has been able to operate through its hundred years of existence even though there has been a change in political heads.

Economic factors are those relating to the changes in the economy like changes in the foreign exchange rate, interest rate. GDP rate, price rises, joblessness rate, etc, and inflation. J. M. Smucker announced its second-quarter results recently where net sales increased 52 percent led by the Folgers brand and operational profits increased.

Social factors are the factors relating to the culture and tradition of a particular area. Every demographic area has a unique social culture. It includes lifestyle change, birth rate, expansion rate, attitude change, etc. Identify differences and incompatibilities between different cultures. There is a need to identify comparative advantages and learn the opportunities and risks. The current trade barriers will have to be examined. Each culture has different technological transfer, managerial ideology, and business–government relations.

Technological factors relate to the research & development activity conducted in the organization. It includes the adaptation of technological changes in an organization. It also includes how much the industry spends for R&D works, how much the government spends for R&D works, improvement of the products, entry of new products, protection of patents, etc.

Conclusion

The J. M. Smucker Company can use either the Pest model or the Porter 5 model which leads to SWOT analysis. SWOT analysis is an important tool for analyzing the state of the business even though it has got certain limitations. It is projected to be an important tool for determining the current and future scenario of the business. Some important domestic brands of J. M. Smucker Company are Adams peanut butter, Crisco oils, etc. and international brands are Pillsbury flour, Folgers coffee, etc

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Strengths

  • The most important strength of the company for the past more than 110 years is its focus on supplying original quality to its customers.
  • The Company is also famous for generating employment opportunities among natives. The Company has been involved with many charitable organizations.
  • The extensive research that the company conducts allows it to introduce new products with a short time gap basis.

Due to its good reputation in the market “The Company has appeared on FORTUNE Magazine’s list of the 100 Best Companies to Work in the United States 12 times, ranking number one in 2004.” (The j m Smucker company top fortune’s list of ‘100 best companies to work for’, n.d., para.3).

Weakness

  • Inability to expand outside the US markets. Its prime attention has been in the US and Canadian market and thereby resulting in the reliance of few customers.
  • Risk of food contamination. Contaminated food can damage the company’s goodwill.
  • High cost of food products.

Opportunities

  • Planned and careful acquisitions of companies is an important opportunity for the company’s expansion. Folgers brand of coffee was recently acquired from Procter & Gamble PG ltd.
  • The growing demand for less sugar and low-fat product is a growth opportunity for the company because people all over the world are now health-conscious, and therefore, the company will find a huge market.
  • Since deserts are favorite among restaurateurs, the products of J. M. Smucker’s can explore in the restaurant sector.

Threats

  • Competition from similar products of other companies imposes a threat to J. M. Smucker’s. Competitors like Unilever, Conagra, Kraft foods who are manufacturing similar food products are a threat to the company because of heavy competition in the market.
  • Unfavorable Government rules.
  • Inflationary prices of food products result in the high prices of end products which is also a threat.

Reference

Industry handbook: Porter’s 5 force analysis. (2010). Investopedia. Web.

PEST analysis: What is pest analysis?. (2010). Marketing teachers limited. Web.

The j m smucker company top fortune’s list of ‘100 best companies to work for’: Archives. (n.d.). 2010. Web.

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StudyCorgi. (2021, November 20). J. M. Smucker Company: External Environment Analysis. Retrieved from https://studycorgi.com/j-m-smucker-company-external-environment-analysis/

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StudyCorgi. (2021, November 20). J. M. Smucker Company: External Environment Analysis. https://studycorgi.com/j-m-smucker-company-external-environment-analysis/

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"J. M. Smucker Company: External Environment Analysis." StudyCorgi, 20 Nov. 2021, studycorgi.com/j-m-smucker-company-external-environment-analysis/.

1. StudyCorgi. "J. M. Smucker Company: External Environment Analysis." November 20, 2021. https://studycorgi.com/j-m-smucker-company-external-environment-analysis/.


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StudyCorgi. "J. M. Smucker Company: External Environment Analysis." November 20, 2021. https://studycorgi.com/j-m-smucker-company-external-environment-analysis/.

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StudyCorgi. 2021. "J. M. Smucker Company: External Environment Analysis." November 20, 2021. https://studycorgi.com/j-m-smucker-company-external-environment-analysis/.

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StudyCorgi. (2021) 'J. M. Smucker Company: External Environment Analysis'. 20 November.

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