Sara Lee Corporation

Table of contents

Executive Summary

This case study provides an evaluation of Sara Lee Corporation and particularly its operations of product lines available through the Wal-Mart stores. To begin with, an effective SWOT analysis of the company was conducted where strengths and opportunities are identified while addressing possible threats and improving its weaknesses to avoid giving the competition an aggressive advantage. Marketing requires effective identification of issues as a key factor in devising the best methods of addressing them.

Therefore, Kirk Nelson identifies the BasicHipster style to be a major problem in the market because it was not doing well. Effective establishment of the best possible solution is therefore critical to maintain the corporation’s market share for the Wal-Mart Account. This analysis generates key alternatives that Kirk Nelson as the Sara Lee Wal-Mart Girl’s Panty analyst should consider in getting out of the current deadlock. This study recommends that Sara Lee Wal-Mart account should retain the FashionBikini due to its better performance compared to the New FashionBikini and introduce back into circulation, the new BasicHipster.

History or introduction

Sara Lee Corporation is a fortune 500 company listed on the NYSE. They mainly mass market their diverse product lines of food and beverages, branded apparel, and household products through large retailers like Wal-Mart and Target, but also smaller store as well. Sara Lee, under the Hanes branded apparel operates a product line of underwear called Girls Panty (GP) targeted girls ages 4-12 that include 3 cuts or styles: FashionBrief, FashionBikini and the BasicHipster. The Girl Panty line in Wal-Mart had to meet its sales and supply standards.

Sara Lee Corporation maintained high sales due its ability to analyze its products on the basis of the market demand and thereby maintaining the customer’s preference. This case study provides a comprehensive analysis of the corporation’s Girl Panty line in the Wal-Mart account, identifies the strengths and weaknesses, recognizes the marketing problem, generates alternatives, make a recommendation and finally offers an effective implementation strategy.

SWOT Analysis

Strengths

Sara Lee has been identified as having 3 key strengths.

First, their ability to employ highly experienced supply chain analysts made it easy for all the members to effectively carry out their roles and cite possible shortcomings on time and come up with workable solutions to address it.

Second, Sara Lee’s longtime history has demonstrated that their products built on leadership brands represent high quality, affordable, casual clothing for everyday use, thereby creating brand loyalty and a strong attachment to its products.

Finally, relationship building and retention is another key strength for Sara Lee. The trusted partnership between Sara Lee and Wal-Mart was two-fold. Wal-Mart served as a strong distribution channel partner with deep market penetration, while Wal-Mart relied on Sara Lee’s wide portfolio of well-known and established brand names.

Weaknesses

According to the case, the corporation suffers some weaknesses. To begin with, the girl panty suppliers are international and therefore subjected to key external forces such as cultural factors, religious considerations, strikes and unrests which made supply uncertain (Case, 427).

With some of the supplies coming from external suppliers, the waiting period was very long and therefore unpredictable (Case, 427). Sara Lee’s market share for the BasicHipster was performing poorly. A New BasicHipster product was in the process of being developed but not yet primed for distribution.

Opportunity

One of the key opportunities that Sara Lee had was its ability to establish the need for new products and make them to replace those whose sales were on the decline in the market.

According to the case (431), Kirk Nelson was informed of a suitable replacement for the BasicHipster after indicating its poor performance.

Threats

Notably, Sara Lee had one key threat to its operation in its Wal-Mart Account, the Fruit of the Loom brand. Global competition was fast emerging in regions such as Eastern Europe, South East Asia and the Middle East powered by technology and cheap labor. Due to this global atmosphere, Fruit of the Loom rose as the main competition in the underwear category (Case 426).

Case Analysis

Sara Lee Wal-Mart account division analysis was the most effective at marketing as it provided a crosscutting evaluation of the product’s performance. Kirk Nelson was deeply involved in generating the most recent information before meeting his boss (Case p. 425). As a result, it acted as a critical organization in promoting sales at the stores at low prices and sustainable supplies (Case 427). As a result, this relationship promoted the internal sales at Wal-Mart while creating the needed impression in other external Sara Lee branches.

In addition to that, the corporation had an effective supply from its widespread supply chain by maintaining distribution centers for its products (Case 427). To ensure that the products, promotion, and pricing were perfect, the analysts’ recommendations were subjected to extra scrutiny and further refinement. This reduced possible cannibalization and provided more effective recommendations on aspects such as replacements of less performing products. Even after analyzing the performance of the BasicHipster style, the decision to replace it had to further be analyzed (Case 428 -430).

Marketing Problem

Due to the lack of performance from the BasicHipster style, it was temporilary replaced with the New FashionBikini until the New BasicHipster was finished. After watching the sales do well for over a year in all three styles: FashionBrief, FashionBikini and the New FashioBikini, the New BasicHipster was ready for the shelf. Should Sara Lee replace the old or the New FashionBikinis with the BasicHipster or should they consider leaving both FashionBikinis selling side by side and not introduce the New BasicHipster? Of course, that decision depends on how well the FashionBikinis (old and new) are working together.

Establishing an effective solution to this problem was a key issue in that the product was expected to be free of cannibalization in the market.

Alternative Solutions

Sometimes analysts make important decisions while generating the sought after revenue and steer their products towards maintaining effective competition. Looking at the marketing problems brings to mind several solutions Sara Lee should analyze. First, Sara Lee management could consider maintaining the status quo as it is, keeping all three lines: FashionBrief, FashionBikini and New FashionBikini.

In doing so, they keep their sales steady without risking the loss of market share and shelf space. Since the FashionBrief was preferred by younger girls while the FashionBikini and the New FashionBikini was preferred by the older girls, this apparent age difference only complimented each other because they each had their own target market. The downside to this is having 2 style cuts that are alike such as the FashionBikini and New FashionBikini because the product line lacks the diversity in styles and limits your target segment.

Both of the Fashion Styles are not targeted to the economy buyer such as the BasicHipster would be and limits your wide range of pricing for consumers. Second, Sara Lee could consider the option to delete either the FashionBikini or the New FashionBikini and bring back the new and improved BasicHipster while keeping the FashionBrief. According to Kirk, he mentions that the sales of the BasicHipster were performing poorly but no graph or sales figures were provided in the case for a comparison.

After charting the sales volume for the exact same year and periods of time between the FashionBikini and the New FashionBikini, there was a sales increase $125,348 where the FashionBikini outperformed the New FashionBikini by 154%. Keeping in mind that the New FashionBikini was only being sold in 1700 store compared to 2300 stores, the increase was still significant. Since keeping both FashionBikini styles on the shelf along with the Fashion Brief and adding the new BasicHipster was not an option, Kirk would have to make a decision to delete at least one of the Bikini lines.

Given the sales data, the one to cut would be the NewFashionBikini. This would give Sara Lee three distinct styles that include a new line of cut, the BasicHipster, which would diversify their product line an appeal to the economy priced buyer and retain the sense of the original hipster to the consumers while giving then a new sense of the market. The downside to this alternative would be risk losing market share. If the BasicHipster was not performing well to begin with maybe bringing the style back might repeat the same results. Again, without numbers to compare, the risk is still prevelant.

On the other hand, the BasicHipster is the New BasicHipster with a new color scheme which could result in a greater market shre while appealing to consumers.

Recommendation

Sara Lee should consider replacing the New FashionBikini with the New BasicHipster based on 3 reasons. First, I had to anaylze the sales of the FashionBikini and the New FashionBikini so I knew which one to elimanite in order to introduce the New BasicHipster. After careful anaylsis I found that the sales of the old FashionBikini were $125,348 or 154% higher than the sales of the New FashionBikini given the same time period.

Also, by not having the BasicHipster style on the shelf for over a year, it would create a need for the product by the consumer. Second, a diverse product line in terms of price and cut would be available appealing to the ecomonic consuios buyer with the New BasicHipster, as well as those consumers who desired more colors and print themes as with the FashionBikini and Fashion Brief lines. Lastly, by keeping the FashionBikini and FashionBrief line, the two had already been in the market and would not require the intensive promotion demanded by a new product.

In addition, the sales and market share should remain contstant and even increase while the promotion for the New BasicHipster takes hold.

Implementation

By adding the new BasicHipster a whole new marketing campaign will be designed around the the new product including commercials aimed at young girls ages 4-12 . email marketing, free giveaways, Further analysis to determine possible cannibalization should first be conducted in the Sara Lee Wal-Mart Account to track the sales volume and market share.

By introducing the already New BasicHipster, a new advertising and promotion effots will take place informing the consumer of this new line and style choice. Revising the NewFashionTh e for the first year to determine if any changes need to be made. If no changes are required, further analyses of the products lines will contunie for another 2 years until their life cycles are near the end whne 1 and continueof the 3 increase the chances of raising sales of the FashionBikini.

Besides, Sara Lee should gradually increase the quantity of the FashionBikini to account for the added sales from the deleted New FashionBikini line while continuing to expand on the growth and promotion of the New BasicHipster to ensure a smooth transition. In addition to that, the corporation should intensify promotion of the FashionBikini to further inform and persuade consumers to buy it at Wal-Mart. Finally, a critical review of the FashionBikini should be maintained to seek consumers’ further preferences while making possible adjustments on their preferences.

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Target Corporation

Target Corporation was founded in 1902 in Minneapolis as the Dayton Dry Goods Company, though the first Target store was opened in 1962 in nearby Roseville, Minnesota. Not until 1995, was the first Super Target was built. In 1999 Target launched their website Target.com. Target grew and eventually became the largest division of Dayton Hudson Corporation, culminating in the company being renamed as Target Corporation in August 2000.

The Corporation became a major retailing power house with $52.6 billion in revenues from 1,397 stores in 47 states by 2005. Realizing a 12.1% sales growth over the past five years target had announced plans to continue its growth by opening approximately 100 stores per year in the United States in the foreseeable future. Target is the second largest discount retailer in the United States behind Wal-Mart and ranked at number 33 on the Fortune 500 as of 2010. Target will operate 100 to 150 stores in Canada by 2013, through its purchase of leaseholds from the Canadian chain Zellers.

Doug Scovanner, CFO of Target Corporation, was one of the five executive officers who were members of the Capital Expenditure Committee (CEC). The CEC were meeting on November 14, 2006 where 10 projects representing nearly $300 million in capital-expenditure request were to be reviewed. In reviewing the 10 projects coming before the committee, it was clear to Scovanner that five of the projects, representing $200 million in requested capital, would demand the greater part of the committee’s attention and discussion time during the meeting. The five projects are Gopher Place, Whalen Court, The Barn, Goldie’s Square and Stadium Remodel.

Gopher Place was a request for $23.0 million to build a PO4 store scheduled to open in October 2007. The prototype NPV would be achieved with sales of 5.3% below the R&P forecast level. This market was considered very important with five existing stores already in the area. Wal-Mart was expected to add two new supercenters because of the favorable population growth in the trade area. Considering the high density of Target stores, nearly 19% of sales included in the forecasts were expected to come from existing Target stores.

Whalen Court was a request for $119.3 million to build a unique single-level store scheduled to open in October 2008. The Prototype NPV could be achieved with sales of 1.9% above the R&P forecast level. The Whalen Court market seemed to be a rare oppurtuinity for Target to enter the urban center of a major metropolitan even though they currently operated 45 stores in this market. The opportunity provided Target with essentially free advertising for all passerby and brand visibility. Unlike the majority of Target stores, this store would have to be leased.

The Barn was a request for 13.0 million to build a PO4 store scheduled to open March 2007. The prototype NPV was achievable with sales of 18.1% below the R&P forecast level. This investment represented a new market for Target as the two nearest Target stores were 80 and 90 miles away.

Goldie’s Square was request for $23.9 million to build a Super Target store scheduled to open in October 2007. The prototype NPV required sales 45.1% above the R&P forecast level. Despite the relatively weak NPV figures, this was a hotly contested area with an affluent and fast-growing population, which could afford good brand awareness should the growth materialize.

Stadium Remodel was a request $17.0 million to remodel a Super Target store opening March 2007. The recent sales decline and deteriorating facilities at this location could lead to tarnishing the brand image. This store has been remodeled twice since 1972 and the investment would certainly give a lift to the lagging sales.

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Disney Corporation Environmental Policy Statement

The Commitment

The Disney Corporation commitment to the environment outlines accountability that demonstrates practices and behaviors for the responsibility to conserve natural resources.

The Policy Applies To The Following

The Disney Corporation Environmental policy applies to the internal business units that represent key roles to following the platform in conservation that entails the resorts attendees, cruise ships personnel, theme parks attendants, and outside venders. The environmental policy fundamental purpose is to infuse business units performance in the needed protection areas that are sustainable to producing negative affects to the environment.

The Guidelines and Principles

Therefore, the guidelines of the policy are for resorts to manage water and energy conversation that needs to use the updated technology system available to reduce consumption. The cruise ships are to operate with Disney standards with healthy and safety measures in utilizing food while at sea. In addition, the cruise ships as well as theme parks are to minimize wastes to reduce non-environmental friendly practices. The business units are to implement measures of either reusing or recycling in order to demonstrate the mentality necessary for complying too the environmental policy.

The guidelines are monitored by a conservation program to ensure each business units follows the priority on climate protection, energy conservation, green purchasing, waste minimization, wildlife and water conversation (Disney.com, 2008). The business units’ practices to performing acceptable environmental behavior will be accomplished by quarterly educational training. The Disney Corporation pursues exceptional practices for environmental friendly operations by demonstrating a cohesive effort towards implementing a proactive approach. The theoretical framework at Disney Corporation provides the mindset to transcend accountability by formulating a responsible environmental plan of action for positive results.

References

Disney.com,  (2008) Disney Corporation Environmental Philosophy, Retrieved  August 1, 2008, from                 http://corporate.disney.go.com/environmentality/environmental_policy.html

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Hershey Foods Corporation: Confectionery Division Marketing Plan

Table of contents

The marketing plan has been formed on Hershey Foods Corporation’s confectionary division and the chosen product is Hershey chocolate which has taken the leading position in the world market. The macro-environments that influence an organization’s activities are demographic, economic, political-legal, ecological, socio-cultural, and technological. These factors influence the Hershey’s production and marketing of chocolates. Though mars have a huge allocation in advertising, and other sectors, but variety of selections have given Hershey the leading position in chocolates market. There are five modes of distributions, like railroads, truck, waterways, airways, and pipelines. But Hershey Corporation only uses waterways for raw materials, truck for finished products. Hardly they use airways for distribution. Hershey Corporation uses producer to wholesaler to consumer channel for distributing chocolates within a short distance whereas they use producer to wholesaler to retailer to consumer where the distance is long.

This organization has some strength, which leads them towards success, some weaknesses, which downgrade the company’s brands, some opportunities, which benefit the firm and threats also which prevent the firm from reaching the goals. All these things are the situations of SWOT analysis. To make a marketing plan, Hershey considers some issues like organization, product-market, and competitive and environmental situations. They consider financial and marketing objectives while developing marketing plan. Marketing strategy contains assumptions of deciding target market, positioning, product/service, pricing, distribution, market communication and market research. These factors further lead to a successful market plan. A well distribution of responsibilities can only ensure an organization’s success. Action program does this important job for an organization like Hershey Foods Corporation. Income statement that has been given reflects the revenues and corresponding expenses of chocolates, which give clear concept about the financial condition of Hershey Corporation. At the end of the planning, a good controlling can accomplish the ultimate goal of an organization. Hershey Foods Corporation has done this step and found some contingency. If they would be solved, then they will lead them towards a fruitful end of a marketing plan.

Introduction

The Hershey Foods Corporation is the number one confectionery in North America. Milton Hershey who was born in 1857 of Pennsylvania Dutch decent was the founder of this company. At 15, he became an apprentice to a candy maker. By age 30, Hershey had begun the Lancaster caramel Company. Hershey manufactures more than fifty five brands of confectionary products including the familiar Hershey’s Milk Chocolate bar, Hershey’s Syrup, Hershey’s Cocoa, Almond Joy, Mr. Good bar, Hershey’s Kisses, Kit Kat, and Reese’s Peanut Butter Cups, Ready-to- eat puddings in four candy bar flavors. Its Hershey Chocolate U.S.A. division, the nation’s largest chocolate producer, makes up approximately 44 percent of the U.S. chocolate industry. His firm was built to reflect the utmost in integrity, honesty, and respect. Hershey also believed in treating consumers fairly and provided the highest quality mass-market product. Everything he did was based on the values, which influenced Hershey’s relationship with customers, employees, and the community. So the product that has been chosen for developing a marketing plan is Hershey Chocolate of Hershey Foods Corporation, which is categorized under Hershey Confectionary Division.

Market Situation

Current Hershey’s principal products are chocolate candy products. Many people are familiar with HERSHEY chocolate bars, KISSES and other chocolate products now a day. Sales of seasonal chocolate confectionery through all channels are estimated to reach some $3.3 billion in 2005. Looking at 2004 sales, which include verified sales for all holiday products, the market stood at $3.4 billion. Between 1999 and 2004, sales of seasonal chocolate increased 1.4% at current prices, which reflects a decline of 10.5% at constant 2004 prices. The overall chocolate market increased 7.6% between 1999 and 2004, but at constant 2004 prices this represents a 5% decline from 1999-2004.
A number of factors have contributed to the decline in seasonal chocolate sales. This report focuses solely on confectionery products that can be assigned to a specific holiday, but some marketers are blurring seasonal lines by making products that can be used for more than one holiday. For example, Hershey’s kisses leverages a number of fourth-quarter holidays by selling bags of red, gold, brown, and orange. But Hershey believes that in accordance with changing tastes, they are making different flavor chocolates and giving gift items with that, which are achieving the national and international market.

Macro-environment

Macro-environment is the larger societal forces that affect the microenvironment- demographic, economic, natural, technological, political, and cultural forces. The company and all of the other actors operate in a larger macro-environment of forces that shape opportunities and pose threats to the company. In the following writings it will be examined that how these forces affect marketing plans of Hershey Foods Corporation.

Demographic Environment

Demography is the study of human populations in terms of size, density, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets . So when Hershey Foods develops marketing plan, they consider the population and other corresponding factors such as the population size, age of the customers who buy Hershey Chocolates, and occupation- as these factors affect the selling quantity, price, quality, market demand etc.

Economic Environment

Markets require buying power as well as people. The Economic Environment consists of factors that affect consumer purchasing power and spending patterns. Since the 1990s, American consumers fell into consumption frenzy, fueled by income growth, a boom in the stock market, rapid increases in housing values, and other economic good fortune. But now it is the age of “squeezed consumer”, which implies that people have been more careful about spending money as it is being costly to maintain a good standard of living[5]. So while Hershey Foods Corporation develops their marketing plan, they consider the economic condition of their existing consumers and their spending patterns; the people, who can’t effort their product because of high price and the people also, who might switch the commodity if the price changes or gets higher.

Political-Legal Environment

Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society. That’s why Hershey Foods Corporation is always concerned about the enforced and changing law and order, because their business policies and marketing plans are affected by those factors.

Ecological Environment

The ecological environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities. Renewable resources like forests, foods have to be used wisely whereas nonrenewable resources like oil, coal, and various minerals create a severe problem. As a result the firms, which are manufacturing products using scarce resources, are facing high production cost. This type of situation often impedes firms for producing further as the rate of return and profit become uncertain and relatively low.

On the other hand, the existing industries also pollute environment. Disposal of chemical and nuclear wastes; dangerous mercury levels in the ocean; the quantity of chemical pollutants in the soil and food supply; and the littering of the environment with plastics, and other packaging materials cause a great damage to the environment . Sometimes it creates air and sometimes water pollution, which degrade the environment.

Hershey Foods Corporation is always aware of their reputation and public sentiments. For that reason they try to make chocolates and other foods without causing any pollution, and provide some social awareness program, which can directly or indirectly impress the chocolate consumers. 3M runs a Pollution Prevention Pays Program that helps prevent pollution at the source- in products and manufacturing processes. Between 1975 and 2002, the program prevented 857,282 tons of pollutants and saved $894 million .

Socio-Cultural Environment

Socio-cultural forces are the influences in a society and its cultures that bring about changes in attitudes, beliefs, norms, customs, and lifestyles. Profoundly affecting how people live, these forces help to determine what, how, and when people buy products. Socio-cultural forces present marketers with both challenges and opportunities. As a result, to accomplish goal, Hershey Foods Corporation has a special consideration and for what they examine the issues of demographic and diversity characteristics, cultural values, and the consumer movement.

Technological Environment

Technological environment is the force that creates new technologies, new product and market opportunities. The technological environment is perhaps the most dramatic force now shaping our destiny .  It has released such wonders as antibiotics, organ transplants, laptop computers, and Internet; horrors as nuclear missiles, chemical weapons, and assault rifles; mixed blessings as automobile, television, and credit cards.

Hershey Foods Corporation is a food manufacturer and distributor that also dependents on technological advancements. For an example, consumers may have ideas about the foods including their quality, price, and availability by traveling into their web site. On the other hand, customers can use credit cards to buy their food items or chocolates. In addition to that, they use another special security system to stop stealing of chocolates.

Competition

Although Mars is second best in chocolate sales, Milky Way is not focused upon as much as M;M’s or Snickers. Though Mars’s advertising at $164 million beats out Hershey’s $140 million, M;M’s share of advertising, at $78 million, is much heavier than Mars’, at $20 million.

In the past, the emphasis of Milky Way production did not include giving the public a variety of selections from which to choose10. As a result of this, Hershey’s has taken the lead in candy bar production. The Milky Way Dark campaign only brought about $10 million of the overall market scale of $150 million in 1999.
Hershey and Mars competitions have evolved from different views in the industry. Hershey has a more friendly relationship with the public as compared with Mars, which is a privately owned company and chooses to develop its own products. As a result of this, chocolate bar segment with 44% of sales, while Mars trails behind with 35%. In spite of this, Management Science Associates reported in Candy Industries July 2000 issue that Mars holds 62% share of volume in vending machine sales over Hershey’s 28%.

Distribution

Distribution means activities used to move products from producers to consumers and other end users11. A distribution mode implies the means of moving goods from one location to another. There are five major transportation modes or means of moving goods.

Railroads

Railroads carry heavy, bulky freight that must be shipped long distances overland such as minerals, sand, lumber, chemicals, farm products etc. Hershey Foods Corporation does not use railroads to carry their chocolates.

Trucks

Trucks provide the most flexible schedules and routes of all major transportation modes, because they can go almost anywhere. Trucks usually haul small shipments of high-value goods over short distances as trucks have a unique ability to move goods directly from factory or warehouse to customer. Hershey Chocolates are very famous all over the world and it needs to be carried over different countries and places12. That’s why Hershey Foods Corporation does not use trucks to distribute chocolates to different countries, but they use their own cargo service to distribute the chocolates within their own country.

Waterways

Water transportation is the cheapest method of shipping heavy, low-value, nonperishable goods, such as ore, coal, grain, and petroleum products.  Hershey Foods Corporation usually uses waterways to carry raw materials for chocolates. And sometimes this mode is used for carrying finished goods too.

Airways

Air transportation is the fastest and most expensive form of shipping. It is used most often for perishable goods; for high- value, low-bulk items; and for products requiring quick delivery over long distances, such as emergency shipments. As it is costly to distribute the good, Hershey Foods Corporation hardly uses this mode.

Pipelines

Pipelines, the most automated transportation mode, usually belong to the shipper and carry the shipper’s products. Most pipelines carry petroleum products or chemicals. Hershey Foods Corporation does not use this mode to distribute chocolates to different places or countries.

The selection of distribution levels is dependent on various factors. That’s why different companies consider different factors to select distribution levels related to their producing goods. For an example, Hershey Foods Corporation considers the following factors for choosing the levels of distribution and number of levels employed to distribute chocolates. They are:

  •  Surety of remaining the goods well and hygienic and no damage during distribution.
  • Cheap and less time consuming to reach the consumer.
  • Simple distribution through simple distribution channel.

Naturally organizations are familiar with four numbers of levels or channels and three types of distribution to distribute the goods.  When Hershey Foods Corporation Distributes chocolates, then they basically use the channel or levels of three people that is from producer to wholesaler to consumer. But if it is the distribution from one country to another, then they have to select the longest one, which involves producer to wholesaler to retailer to consumer. As the distance increases, the channel gets longer.

Opportunities and Issues Analysis

Strengths and Weaknesses

This section of the marketing plan marks the first part of the SWOT analysis, which stands for strengths, weaknesses, opportunities, and threats. The analysis of strengths and weaknesses focuses on internal factors that give the organization certain advantages and disadvantages in meeting the needs of its target markets. Like other organizations, Hershey Foods Corporation has strengths and weaknesses. Strengths that Hershey Foods Corporation has in marketing plan of making and distributing chocolates are given below:

  • Hershey Foods Corporation has the utmost reflection in integrity, honesty, and respect.
  • This organization believes in treating consumers fairly and to provide the highest quality product at a competitive price that will ensure an adequate return on investment and profit.
  •  Good relationship with the customers, employees, community, shareholders, suppliers etc.
  • Employees are provided specific written policies which contains policies on the use of corporate funds, resources, and conflict of interest, law prohibition on price-fixing, personal responsibilities of employees etc. that provide guidance for handling ethical issues
  • Top-level management with Good number of skilled and efficient persons15.
  • Adequate money supply for both making and distributing chocolates.

These are the strengths that are derived from the environmental analysis of Hershey Food Corporation which determine the good activities that work behind their success in business world.

Weaknesses refer to any limitations that a company might face in marketing strategy development or implementation. In accordance with strengths, Hershey Corporation has some weaknesses too, which actually downgrade the image of the company’s brands. Some of them are given below:

  • Over reflection of integrity, honesty and respect sometimes make employee boredom and less interested in working.
  • To maintain a good relationship with the employees, customers, shareholders, suppliers, community, Hershey Corporation has to spend a lot of money, which sometimes reduces the profit level. And when profit level goes down there is possibility of making inferior goods and services.
  •  When the policies are not absolutely followed by the corporation, then it creates frustration, misunderstanding, which deteriorates the working environment for both the employers and employees that is also harmful for the consumers.
  • Inadequate arrangements of transporting goods often cause less volume of supply, selling and less profit.
  • Though frequent changes in flavor and tastes cause higher cost, but they have to do it to compete with the competitors and to satisfy the consumers.

These weaknesses often cause less profit and bad reputation for the company. For that reason, the Hershey family has to keep sharp eyes on these factors, which are difficult in some cases.

Opportunities and Threats

The second situation of SWOT analysis examines the opportunities and threats that exist in the environment. It focuses on factors that are external to the organization. Opportunities are situations that exist but must be acted upon in order to benefit the firm. Some opportunities that can stem from many sources are given below:

When a company is threatened by a competitor’s new-product introduction, a defensive strategy may be required. In some cases such a threat can be transformed into an opportunity if the firm can develop and launch a new product that meets or exceeds the competition’s offering17. Hershey Foods Corporation also transforms threatened into an opportunity by launching a new chocolate with a new flavor.

Threats, on the other hand, refer to conditions or barriers that may prevent the firm from reaching its objectives. If a company introduces a new concept to defeat another company, then it can be categorized as threatened18. To transform a threatened into opportunity, a company can hire outside consultants. Hershey Corporation often uses this technique to convert threatened into opportunity.

Issues Analysis

In issues analysis, sometimes called SWOT analysis, an organization identifies its internal strengths, and weaknesses as well as external opportunities and threats. Issues analysis search answers of two general questions

  • Where is the firm now?
  • In what direction is the firm headed?

These questions are answered by recognizing both company strengths and weaknesses relative to competitors, searching the environment for potential opportunities and threats, assessing the organization’s ability to capitalize on opportunities and to minimize or avoid threats, and anticipating competitors’ responses to company strategies.

In planning its marketing strategy, a firm should consider four factors. Hershey Foods Corporation also considers these issues while planning19. The issues are:

  • Organizational Situation: What are the company’s objectives, capabilities, and     resources?
  • Product-market Situation: Is the product category relative to the market place, growing, mature, or declining? What are the current size and expected future growth rate of the product category?
  • Competitive Situation: How many competitors are there? What are their characteristics and marketing approaches? Can/should the firm be a leader, a market challenger, a market follower, or a market richer?
  • Environmental Situation: What industry wide and company- specific environmental opportunities and threats are most important?

Objectives

Financial Objectives

The financial objectives deal with revenue, cost and profit, and sometimes credit. During making marketing plan an organization needs to collect information about the expected sales, ultimate consumers so that they can have expected amount of revenue or profit and the cost also do not exceed the expected amount. Financial objective also deals with credit. Because in some cases, sufficient money supply can only bring a company’s best output20.

Marketing Objectives

Marketing objectives are normally described in both quantitative terms like dollar sales, percentage profit growth, and market share, etc. And qualitative terms like image level of innovativeness, industry leadership role, etc Like Hershey Foods Corporation, other organizations set their objectives, which are specific, because vague objectives lead towards uncertainty and less amount of profit. The strategic objectives should be measurable by money or it should be in that form by which people can make monetary transactions. If the objective is real, relevant and achievable, then employee and related people get interested on that. Otherwise it seems impossible and people don’t get involved with this type of works. Time bound is a very important factor of making a marketing strategic plan. Doing work in right time, ensure maximized profit and reputation.

Marketing Strategy

Marketing strategy is the marketing logic by which the company hopes to achieve profitable relationships.

Target Market

Target marketing involves evaluating each market segment’s attractiveness and selecting one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain it over time. Hershey Foods Corporation considers demographic and geographic factors to target market. Demography is the study of human populations in terms of size, density, age, gender, race, occupation, and other statistics. So while Hershey Corporation sets target market for chocolates, they consider the demographic condition of the ultimate consumers as choices vary in accordance with these factors. On the other hand, different geographical environment, different situation cause difference in choice. That’s why before setting target market Hershey Corporation considers this factor.

Positioning

Market positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Thus, marketers of Hershey chocolates plan positions that distinguish their products from competing brands and give them the greatest strategic advantage in their target markets23. As it is the matter of customer satisfaction and company’s reputation, so company first identifies possible competitive advantages upon which to build the position. To gain competitive advantage, the company must offer greater value to target consumer. It may be by offering lower price compared to competitors or any other way which attracts the consumer.

Product/Service

The product/Market opportunity matrix explains market penetration, market development, product development, and diversification options. While Hershey Foods Corporation market chocolates, they consider the type of the product, its thickness, and its shape, used materials suitable temperature to select its packaging pattern. The packaging plays a vital role here as most of the consumers are kids and nice packaging attracts them very much24.

At the beginning, Hershey milk chocolate was in a big size, but evaluating the customers’ preferences, they found that customers prefer these chocolates in a smaller size so that it can be carried easily25. And Hershey Corporation did that showing respect to the customers’ opinion, which increased its demand more.

Pricing

Price is what a buyer must give up to obtain a product. Marketers can raise or lower prices more frequently and easily than they can change other marketing mix variables. Price is an important competitive weapon and very important to the organizations as it implies the total revenue of the firm.

Through pricing, people may have idea about the purchasing power, which also implies a country’s economic condition. Realistic pricing goals require periodic monitoring to determine the effectiveness of the company’s strategy. Pricing objectives can be divided into three categories:

  • Profit oriented: Profit oriented objectives include profit maximization, satisfactory profits, and target return on investment.
  • Sales oriented: Sales-oriented pricing objectives are based either on market share or on dollar or unit sales.
  • Status quo: Status quo pricing objective maintains existing prices or meets the competition’s price.

Value cost must be an issue when establishing price, because many financial terms and conditions are dependent on it. It is very natural that price creates competition in most cases and it is also the main reason behind success and failure. But sometimes organizations choose break-even pricing when they found that it is not possible to ensure profit. It should be mentioned that break-even pricing is that point, where revenue and cost get equal26.

Distributing Outlets

Distribution outlets are concerned with making products available when and where customers want them. As mentioned earlier, distribution chain or channel, levels of distribution- all these things play a major role in marketing plan strategy of Hershey Foods Corporation.

Marketing Communications

Communication is the process of exchanging or sharing meanings through a common set of symbols. So marketing communication can be interpreted as the process of exchanging meanings of the people who are directly or indirectly involved in market.

Sales Force

Sales force conducts all the activities related to selling. For that reason, Hershey Corporation pays much attention to them, so that their desired sales can be achieved. In this purpose, they offer bonus, increment, sales commission, which play the role of communication between employer and employees27.

Sales Service

To give a higher quality services to the consumers, Hershey Foods Corporation up to date the employees with new policies of satisfying the customer.

Direct Marketing

Direct marketing includes snail mail, e-mail, telemarketing, and Internet presence. If needed, organizations may use these sources to communicate with ultimate consumers to up to date the product information. Organizations can communicate and send documents also if it is needed.

Sales Promotion

Sales promotion and advertising are not same. Sales promotion includes data sheet, product brochures, sales giveaways, sales incentive plans, trade shows, customer perks, etc which also used as marketing communication source of marketing strategy.

Public Relations

Public relation is the third-party print media that is unpaid, typically using press announcements. This also used as medium of communication, which can cover a large area than any other sources.

Advertising

Advertising is impersonal, one-way mass communication about a product or organization that is paid for by a marketer. It increases knowledge about a new product and sale volume as well. Hershey Foods Corporation spends much money in this sector that really attracts people to buy their chocolates.

Market Research

There are basically three types of researches. They are:

  • Exploratory Research: It is one kind of research to gather preliminary information that will help define problems and suggest hypotheses.
  • Descriptive Research: It is one kind of marketing research that is applied to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers.
  • Casual research: Casual research is one kind of marketing research to test hypotheses about cause-and-effect relationship29.

For the Hershey Foods Corporation, descriptive research carries fruitful output. By developing this type of research they gathers information about market condition that is market problems, market potential for a product, different attitudes of consumers, etc. This information helps their business to proceed further. One thing is that, Hershey Foods Corporation follows this research method to make marketing plan of their confectionary division and basically for chocolates.

Action Program

Marketing Strategy has been developed, but the responsibilities have not yet been distributed; at this moment, the marketing plan will not be successful, in some cases impossible. In respect of Hershey Foods Corporation, to develop the marketing strategy of the product of chocolates that is under confectionary division, Hershey has recruited different departments and persons. The market specialists who are recruited for market analysis identify their target market. It should be done first before doing any research but it is not much costly. Positioning refers to the customer opinion. Hershey Customer Care unit has done this job. It is necessary to do this job before developing the plan of producing further. This strategy cause some costs to the company, as it requires survey.

Hershey requires this strategy when they go for producing old chocolates in a different taste, package, or shape. Production and packaging unit of Hershey Corporation, which cost huge money, to develop has done this. Hershey Corporation is very conscious about pricing. That’s why they have to pay attention in pricing objective and methods to apply the appropriate one in their research30. Hershey Foods Corporation determines price combining all units’ decisions as it is determined by considering all the costs accumulated by different departments. The strategy has been applied before marketing the product and it does not cost much money.

Distribution, communication, and research are interrelated. To distribute, commodity communication is needed. Hershey Foods Corporation distributes their chocolates in an appropriate method and the selling and administrative unit decides it and customer care also as it is related with communication. These are the last strategies of marketing. Its cost depends on distance and aspects that are going to be considered while increasing marketing.

Controls and Contingency

Control is the last step of any kind of planning. Hershey Foods Corporation has applied controlling at the end of the planning before going to huge production. They have seen that everything is good, but if they can reduce distribution cost from 5.0 to 3.0 cents, then they can reduce the selling price by 2.0 cents, which can increase their selling by 5%. The steps that management would take in response to this contingency are- they can provide another new cargo of their own to distribute chocolates only or they can reduce exporting to those areas where it costs high to distribute commodity. If Hershey Foods Corporation can overcome this contingency in marketing plan of chocolates, then the long-lasting top most position in chocolates market will be more assured for Hershey Foods Corporation33.

References

  1. Philip Kotler ; Gary Armstrong (2006) Principles of Marketing, 11th edition, Pearson Education, Inc.
  2.  William M, Pride ; P. C. Ferrell Marketing Concepts and Strategies, 10th edition, Pride and Ferrell, 2000
  3.  Joel R. Evans ; Barry Berman Marketing, 4th edition, Macmillan Publishing Company, 1990
  4. Charles W. Lamb, Jr. ; Joseph F. Hair, Jr. ; Carl McDaniel, 5th   edition, South Western College Publishing, 2000
  5. Hershey Foods Corporation webs Publication:  coinoptoday.com`

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FedEx Corporation History

FedEx Corporation was incorporated in early 1970s and introduced express delivery to the world in 1973, and remains the world’s largest express transportation company. It started delivering packages all over the United States. FedEx is very focus on growing and constantly improving their speed of service, demonstrated through their history of being first to try new technologies. Their services range from information systems, to delivery, to custom printing. The Federal Express uses strategies of designing and redesigning the organization on a continuous basis to meet changing market needs.

In addition, Federal Express learned to lead the market with world-class distribution systems. ACTIVITIES-FedEx services include Internet access, professional finishing, signs and graphics, copying and digital printing, FedEx Express, direct mail and FedEx Ground shipping, document creation etc. In addition, the company offers Print Online, an online printing solution for business and personal printing, at home, at the office or on the go. FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. Read about FedEx Stakeholders

FedEx provides different services regionally, nationally and internationally. Each service and product lines are under a department division. FedEx Express is the world largest express transportation company. It has freight services within the United States and other countries internationally . FedEx Freight is the U. S provider of next and second-day regional, less-than-truckload (LTL) freight services. It is comprised of two operating companies, FedEx Freight East and FedEx Freight West.

Others include; FedEx Ground, FedEx Kinko’s Office and Print Service, FedEx Custom Critical, FedEx Trade Networks and FedEx Services

PROJECTS – For long term investment FedEx should focus on the initiation of long term investments like ships as this will make transport to be effective and efficient worldwide. The bulky cargo carried by air transport will be carried by ship hence it will safe the costs more so for those countries which are served by the sea or lakes. The commodities which are in most cases transported by the vehicles and aero planes will be conveyed by ships in large volume.

For short term investment FedEx Corporation should liaise with national parks and game reserves so as to bid for the tender of tour guiding the tourists throughout the world. This will make the company to fetch huge sums of money from the tourists.

SOURCE OF FUNDING- The funding agency’s money are being brought together with other existing organizations that are already committed and involved in dealing with the needs that the project is responding to. It is very impressive to a prospective funding agency if local resources have already been contacted and plans to include them in the project have already been made.

Agencies must believe that their money will be making a significant difference in the areas of policy, procedures, or services as a result of the project. They are also interested in how their funds will change the responsiveness of the institution to the needs of its clients and the community. The most common source and an appropriate source of sponsored program support is the federal government. State governments and private foundations are also good sources of support. As to my case I will ask for assistance from agencies and foundations in seeking for potential sponsors.

This will be invested in long term projects. For sort-term projects it might get funds from the retained profits from the previous years which might be the appropriate source. This is because the government in most cases has many projects to sponsor hence it might not have enough funds to sponsor private projects. Their structure is very complicated, yet very well planned out. Their strategies focus on the needs of their employees, and they strongly support through words and action—workplace diversity. At the top of each division there is a combination of Chief Executive Officer/President/Chairman.

Then follows an Executive Vice President, of Market Development and Corporate Communications, who also is the President, Chief Executive Officer of FedEx Services. This job is responsible for all marketing, sales, strategic planning and analysis, and communications activities for FedEx Express and FedEx Ground. Executive Vice President and Chief Financial Officer- is responsible for all aspects of FedEx Corporation’s global financial functions, including financial planning, treasury, tax, accounting and controls, internal audit and strategic sourcing.

Executive vice president and Chief Information Officer – responsible for setting the technology direction, including the corporation’s key applications and technology infrastructure. The next position is Executive Vice President, General Counsel, and Secretaryb- is responsible for ensuring that FedEx Corporation’s global activities are in compliance with international, federal, state and local government regulations. The first position for the FedEx Express portion is President, Chief Executive Officer and is responsible for the ultimate direction, leadership and accountability of FedEx Express worldwide operations.

The FedEx Corporation is a centralized company where as the higher leveled management has much more responsibility than the lower level employees. The lower level employees are not entrusted with much responsibility because their task is merely to take the package from one point to the other and there is no room for the employees to use the miniature power they have when on the road or doing any task they are delegated. The President of the FedEx Corporation, Frederick W. Smith, is responsible the direction of all the FedEx divisions.

Power flows from him down to all the other leaders of the different divisions, but eventually is in his hands.

REFERENCES

Bartiromo, Maria, The Inspiration Behind Federal Express: A Central Hub, retrieved 2007-10-30 Drinkard, Jim “Donors get good seats, great access this week”. USA Today. (2005-01-17). FedEx Corp: Summary. Center for Responsive Politics. February 28, 2010. FedEx Ditches Kinko’s Business Week. June 3, 2008. The Sneeze: The Man Behind the FedEx Logo, November 16, 2004

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Fedex Corporation Essay

Federal Express (FedEx) Corporation could be said to be the world’s leading shipping company which was originally known as FDX Corp. In January 1998, it acquired Caliber Systems Inc. and through the sales made the company sort to build and expand on basis of its strength in delivery services. Today, it has several companies that compete under the same name and logo, mainly: FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks and FedEx Services. Fed-ex could easily be assumed to have all the necessary resources needed to run its everyday operations.

It is true that this company is well equipped with the latest technology, machinery and transportation we could think of. Aside from this, the company could look into introducing a training program that could gradually build to become a training institution. It may not be as far-fetched as it sounds because this company has been able to acquire a global reputation that is commendable. All these within a matter of years. Having a training program that seeks to coach those hoping to work for or with FedEx, would boost customer confidence in the company.

(Madan, 2005, P. 14) The training program would offer training in all areas and aspects of FedEx. From management to baggage handling to packaging and transportation to customer care and relations. It is an investment project that could be worthwhile in the future. The trainees would be trained by the best in the field and in turn provide the best services in the field. FedEx has numerous competitors in the courier industry but has emerged top courier provider in the United States, thanks to its strategic plans and direction.

Having the training program assures the company’s stakeholders of quality production and service. Of course for this program to be in effect, funds have to be provided. FedEx has a net income of US$ 765 million (financial statements 2010, Q3) and so with proper planning, installment of the program would not be hindered by lack of funding par se. There are a number of challenges that the program could face before inception into the organization. They include, cost of risk, inception and general operating costs for the program, politics involved in trying to get it through committees and public relations.

Looking into the cost of risk involved in introducing this program, they stand undesirable to some extent. On one end, a training program ensures of a better future in terms of the company’s investor and stakeholder relations. It will increase their confidence and trust in the company as a company that seeks to be the best in the world. (Madan, 2005, P. 15) On the other end, the move to implement this new program could be the worst decision made if the results do not reflect the projections made when the idea was first introduced.

I have chosen to assume a growth projection of 15% upon implementation of the program. The computations on revenue, operating income and net income are done against the financial reports in 2009. It is a long-term project as results will start to show once training has commenced and the first students have implemented what they have learnt. This could be estimated to take 6-9 months. (Thareja & Capstone project, 1999, P. 24) The general costs of operation and other expenses will increase as a result of the program’s implementation.

For a while before the company breaks-even, less profits or even losses will be felt but with the 15% projection, returns will be worth it. The organizational structure of any company is an important part that could determine the order of operations and decision-making. Through my research I have come to understand FedEx to be a very flexible employer and regards it employees with such high esteem. As to such, top management is open to suggestions from anyone and everyone within the organization, who feels that their idea could help the organization attain its goals.

Although it is not very clear, I want to believe that the same relaxed mode goes with decision-making. Bringing forth a proposal such as this is not easy if the flow of communication is too tight. Such a channel discourages creativeness among employees and thus the company misses out on great chances at innovations and advancements. This also encourages internal politics that are not healthy and could hinder effective flow of communication. Internal politics only slows work down and results in sub-standard products and services.

Public relation is another sensitive area in relation to a company’s growth and development. It is the same public that you rely on for your very existence. Therefore, it is with utmost importance that FedEx treats its stakeholders with the respect accorded to them. If a company has a bad public image, then it is almost of no use to encourage people to join your organization for the training program. Good public image translates to good public response and support to your services and new ideas. (Wetherbe, 2000, P. 27) CONCLUSION

Generally, FedEx is a good employer and it is clear that they want their employees to work under conducive conditions. Similarly, the company expects the staff to be at their best and perform beyond expectations. With rapid technological advances and increasing management styles, the training program will ensure tat FedEx stays ahead of its competitors and have the upper hand with the economy and market share. It is one of their goals to be the global leader in offering this transportation service. Installing this program could be a step in the right direction!

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China Petrochemical Corporation

Sinopec Corporation is one of the largest integrated energy and chemical companies in China with headquarters in Beijing. It is a well-known brand with an excellent reputation, listed in Hong Kong, Shanghai, New York and London. (Sinopec, Fact Sheet, 2009) Like every Joint Stock company in China, it consists of three main bodies: The shareholders general meeting as the highest authority which appoints the board of directors (executive) which in turn is being inspected by the supervisory board.

The gigantic China Petrochemical Corporation Group (Sinopec Group) has been established in 1998 based on the former China Petrochemical Corporation. The Group is completely state-owned and functions as a state-authorized investment organization. (Sinopec-Group, 2011). In February 2000, Sinopec Limited (also named Sinopec Corp. , hereinafter referred to as Sinopec) was founded as a majority-owned joint stock company under the state-owned Sinopec Group. The company was simultaneously listed in Hong Kong, New York and London in October 2000.

In order to do this, Sinopec has made a total issuance of 16. 78 billion H-Shares . The Shanghai listing was completed in July 2001 after issuing 2. 8 billion A-Shares in the People’s Republic of China (PRC) and thereby diluting the state-owned stakes from 100 % to just over 64 %. (Sinopec, Our History, 2011) During the next couple of years, Sinopec constantly acquired companies and assets in order to foster its rapid growth. The first takeover took place in August 2001, when Sinopec bought China’s New Star Petroleum Company.

Three years later, in 2004, the company acquired chemical assets, catalyst assets and service stations from Sinopec Group. In 2006, Sinopec increased its capital in Hainan Petrochemical Co. , Ltd and after completion it held 75% of its equity interests. Later on, the oil production assets as well as five refineries were acquired from Sinopec Group. (Sinopec, Our History, 2011) 1. 2. Main business portfolios To put it briefly, Sinopec operates four main business portfolios. (see image 1) The entering wedge to every aspect of the company’s business is the exploration and production of oil.

The department is in charge of the management of oil and gas exploration, production, reserves and assets as well as the marketing of oil and gas (Sinopec, Exploration & Oil Production, 2011). This segment achieves a steady growth; by now, Sinopec is the second largest producer of crude oil and natural gas in China (Sinopec, Fact Sheet, 2009). After having produced the oil, the second business portfolio, namely refining, gets its chance. In fact, Sinopec is the largest oil refiner in China, producing gasoline, diesel, kerosene including jet fuel, fuel oil, chemical feedstock and other petroleum products.

After refining, the oil is either sold in service stations (29,000 stations by 2010), which involves marketing and distribution activities, or used to produce chemicals such as ethylene, synthetic resins, monomers and polymers for synthetic fibre and rubbers. Sinopec is the largest producer and distributor of chemical products in China. (Sinopec, Fact Sheet, 2009) Image 1: Sinopec’s main operations 1. 3. Products ; Services Overall, Sinopec’s array of products contains nine main products and services. The subsequent graph shows an overview of the portfolio:

Image 2: Products and Services of Sinopec In the following, only the most important products and services will be outpointed. Namely the service stations, the lubricants and the equipment ; materials are further described. The one product everyone in China sees every day is the service stations. Sinopec acclaims the largest nationwide service station network, covering China’s cities and countryside, on roads, expressways and waters. The stations offer gasoline, diesel, kerosene, lubricants, convenient store goods and non-fuel products which broadens the range of potential customers enormously.

Another part of Sinopec’s main products are the lubricants. The company produces automotive, special synthetic, industrial and marine lubricants as well as different greases. And last but not least another very important product is surely equipment & materials. Sinopec International, as the trading arm of Sinopec, exports drilling rigs, pipes, towers, reactors, heat exchangers and other products to the USA, Canada, Russia, Poland, India, Brazil, Thailand, South Africa and Middle Eastern countries. For their equipment & materials department,

Sinopec has established long-term cooperation with leading oil companies such as BP, Shell, ExxonMobil and global engineering companies such as Technip, Aker Kvaerner, Saipam and CBI. (Sinopec, Products & Services, 2011) 2. Sinopec Corporate Governance: Benchmark in China? “Good corporate governance is essential to the sustainable development of Sinopec Corp. We commit to balance the obligations between shareholders, customers, employees and stakeholders, and improve the capacity of decision-making and risk prevention to ensure the Company to operate more efficiently. ” Sinopec Sustainable Development Report 2009

‘Best Corporate Governance Among Mainland Chinese Companies’ (Asset; Hong Kong based monthly magazine) and ‘The Best Corporate Governance in Emerging Market’ both in 2003 (Euromoney), ‘Best IR Practice in the oil & natural gas industry in Asia’ and ‘Best overall IR Practice in China (including Hong Kong)’ in 2004 (Institutional Investor Magazine), ‘Best Annual Report and Other Corporate Literature’ in 2005 (IR Magazine), ‘Best Investor Relationship’ 2009 (IR Magazine), ‘Shanghai Stock Exchange Information Disclosure Award’ in 2010 – The list of Sinopec’s corporate governance related awards over the last years is impressive.

In order to comprehend why Sinopec’s corporate governance has been that successful in the past, it is necessary to take a closer look at the structure of the company’s corporate governance system. Therefore, measures, positions, functions, responsibilities and interdependencies within Sinopec’s corporate governance concept will be further described and analyzed in the following. Sinopec’s corporate governance structure basically consists of three main organizational units: The shareholder’s general meeting, the supervisory committee and the board of directors (see image 3).

Image 3: Overview of Sinopec’s corporate governance structure 2. 1. The Shareholder’s General Meeting The shareholder’s general meeting (SGM) is a main structural element of corporate governance according to the Chinese law. The SGM has to make significant decisions regarding Sinopec’s operational policies and future investments. Furthermore, the SGM has to elect and displace the directors and supervisors representing shareholders. The SGM has to examine and approve reports from the board of directors and the supervisory committee and plans related to the profit distribution and loss recovery.

Additionally, the SGM has to pass resolutions on changes in the company’s registered capital, on mergers and acquisitions, on dissolution, liquidations and the company’s debentures, decide on objections by the supervisory committee or shareholders representing at least 5% of the total voting shares and lastly amend Sinopec’s so-called Articles of Association. The Articles of Association are an international set of rules for the establishment of a company in many countries of the world. In general, resolutions are performed by a show-of-hands, if not the chairman or at least two shareholders request a ballot.

Ultimately, the chairman of the SGM has the final decision power. The shareholder’s general meeting is divided into the annual general meetings (AGM) and extraordinary general meetings (EGM), both commonly convened by the board of directors. The annual general meeting is held, as the name indicates, once a year in the last 6 months before the closing of the preceding business year. The AGM is responsible for the verification of the annual reports of the directors and the supervisory committee and the verification of the profit distribution proposal and last financial year’s final budget.

As stated above, shareholders or members of the supervisory committee representing more than 5% of Sinopec’s voting shares can raise objections which also have to be resolved in the AGM. On the other hand, the EGM at Sinopec can be convened by the board of directors on special occasions according to the Articles of Association – for example, if the number of directors is below the requirement of the Chinese company law or if a shareholder, holding more than 10% of Sinopec’s voting shares, formally requests a meeting.

Sinopec’s ‘Rules and Procedures for the shareholder’s general meeting’ precisely determine the SGM’s functions, the authorities given to the board of directors (see chapter I. 2) and the convening of the general meeting (including resolutions, votings and all procedures within the meeting). 2. 2. The Supervisory Committee The second element of Sinopec’s corporate governance is the supervisory committee (SC). Sinopec’s supervisory committee oversees the upper management and the board of directors, including the board’s secretariat, the (vice) president of Sinopec and the chief financial officer.

The SC ensures that the management adheres to laws and regulations and that the shareholder’s interests are appropriately taken into account. Moreover, the SC is responsible to supervise Sinopec’s financial issues. The SC has to give account of its activities to the shareholder’s general meeting. Sinopec’s SC is composed out of 12 members – one third of the members are Sinopec employees, the other two thirds are shareholder representatives. Every supervisor is elected for three years. However as re-election is possible, the tenure of the SC members is therefore practically not restricted.

The supervisors are proposed by the board of directors, shareholders who hold more than 1% of Sinopec’s voting shares or the supervisory committee itself. The Sinopec representing supervisors can only be elected or displaced by Sinopec’s staff. Similarly, the supervisors representing the shareholders can only be selected or removed at the shareholder’s general meeting. The supervisors elect and displace a chairman by the majority of two-thirds. As representative in the shareholder’s general meeting the chairman is responsible for the committee’s activities, convenes the SC meetings and has to oversee and answer for the committee’s reports.

Because they may be influenced due to their position, Sinopec’s directors, presidents and vice presidents as well as other finance employees are not allowed to join the supervisory committee. This ensures the committee’s ability to freely supervise the financial operations and management. It is in turn the top management’s duty to report all required information to the supervisory committee, in order to guarantee proper supervision. For example, the president of Sinopec has to attest the validity of all company documents and reports if requested by the supervisory committee.

Moreover, the president has to inform the SC about decisions involving the use of Sinopec’s capital. In case of violations against laws and regulations the Sinopec’s supervisory committee may report to the board of directors or shareholder’s general meeting or directly to the responsible government authority. Being the central authority of supervision in Sinopec’s corporate government structure, the supervisory committee has to report all breaches committed by the directors, the board’s secretary, the (vice) president of Sinopec or the CFO.

All in all, the SC is responsible to examine Sinopec’s financial statements, consult external auditing partners if a lack of clarity remains, propose extraordinary general meetings and provisional board meetings, attend meetings of the board of directors, oversee the upper management and the directors that their actions are in the interest of Sinopec and within the law and report, punish the senior management if necessary and collect all required information in case of potential breaches.

The supervisory committee meets four times a year, including an interim results meeting, a year-end scrutiny meeting, a meeting for the planning of the upcoming year and a financial management meeting. In addition, the chairman of the supervisory committee may also call a special SC meeting because one of the following reasons: The chairman himself requests a special meeting, at least two-third of the members of the SC call for a meeting, Sinopec’s assets are strongly diminished or finally, there has been a violation of laws or a violation is expected in the near future.

Both regular and special meetings of the supervisory committee and meetings of the board share the same rules and methods (see chapter ‘The Board of Directors’). 2. 3. The Board of Directors and the Committees The board of directors (BoD) is the central executive body in Sinopec’s corporate governance structure. The board consists of 13 members, the directors. Four of the directors are independent directors, two directors are act as chairman and vice chairman, elected displaced by the other directors.

Similar with the supervisors of the supervisory committee, directors are elected for a period of three years; however, re-election is possible without a limited tenure. On the contrary, independent director’s tenure is limited to a maximum of six years. The election of the directors takes place at Sinopec’s SGM. Again, quite similar to the method of election of supervisors, the board of directors itself, the supervisory committee or shareholders holding more than five percent of Sinopec’s voting shares are able to propose candidates for the position of the (non-independent) director.

Independent directors are contrariwise only nominated by Sinopec shareholders holding a stake of one percent of the company. It is not compulsory for directors of Sinopec to buy shares of their own company. To elect the directors, Sinopec applies the so-called ‘Accumulative Voting System’. According to the Articles of Association (see also chapter ‘The Shareholder’s General Meeting’), the accumulative voting systems is used under the proposition that firstly, the company’s controlling shareholder holds a stake of more than 30% and secondly, two or more directors are being determined at the same general meeting.

The accumulative voting system means, that every share grants exactly the number of votes that are equal to the number of directors being elected. Shareholders can choose from the accumulating their votes on one candidate to allocating their votes to several candidates. Eventually, the candidates with the highest numbers of votes are being elected as directors. This voting method motivates minority shareholders to give their votes to their favored candidates and avoids the situation that majority shareholders single-handedly determine the choice of directors.

Sinopec’s system of corporate governance allows dismissing members of the board with a resolution at the shareholder’s general meeting before the end of their tenure. Additionally, if a director repeatedly fails to attend board meetings (and fails to send a proxy) he can be dismissed at the next SGM on request of the board of directors. For non-independent directors two successive times of absence are required, for independent directors the requirement is three times in succession.

Independent directors at Sinopec serve special purposes and have rather limited powers: They mainly provide assistance on decisions regarding the consultation of external financial and auditing firms. Therefore, independent directors may independently approach an external financial advisor or auditor; or propose extraordinary general meetings or meetings of the board of directors. Furthermore, independent directors are allowed to directly report to shareholder’s general meetings or government authorities and departments.

Independent directors can only be removed for the reasons stated above. In case of a dismissal Sinopec has to communicate the reasons that led to the decision and allow the displaced independent director to give an ‘open declaration’, if he or her finds the reasons to be inappropriate. The chairman presides over the board of directors meetings and the shareholder’s general meeting. It is his field of responsibility to manage and guide the activities of the board of directors and assure the proper implementation of measures within Sinopec initiated by the board.

Moreover, the chairman has represent Sinopec if needed and sign documents of importance on behalf of the company. The vice chairman may act in place of the chairman if the latter is unable to exercise his duties. An interim results meeting, an annual meeting and two quarterly meetings: At Sinopec, forementioned regular board meetings are called up four times a year. Extraordinary board meetings can be held via telephone, video conference or written resolutions. The physical attendance of all directors is required in a meeting conducted twice a year.

The members of the board are given at least 10 days in advance for preparation for a meeting. If the provided material is found to be insufficient to reach a decision, the meeting can be deferred on the request of one-fourth of the directors. The chairman, more than one-third of the directors, at least the majority of the independent directors, the company’s president or the supervisory committee are eligible to request a provisional board meeting. The chairman has to inform the participants of a provisional board meeting within a week after the request has been made.

Whereas the secretary of the board is responsible to collect all director’s proposals and hand them to the chairman, both the secretary and chairman jointly decide the time, place and agenda of the meeting. However, the directors, the supervisory committee, the board’s committees and all subsidiaries of Sinopec are eligible to add subjects to the agenda of the meeting. Board meetings are generally held on the premises of Sinopec and require the attendance of at least 50% of the directors. Directors can excuse themselves and delegate a proxy. The proxy is only able to vote according to the director’s wish.

Directors that fail to send a proxy lose their right to vote. Ordinary resolutions require a simple majority whereas special resolutions require the affirmation of two-thirds of the directors. For example, special resolutions comprise all credit and finance-related decisions. Whether resolutions are adopted by ballot or show-of-hands, directors have one single vote. The board of directors may consult three committees for assistance on certain issues: The ‘Strategic Committee’, the ‘Auditing Committee’ and the ‘Remuneration & Performance Examination Committee’.

The strategic committee focuses on the development and evaluation of Sinopec’s long-term business strategies and investments and is staffed with the 13 members of the board. In contrast, only seven directors form the auditing committee, which is responsible for the choice of external auditors, the supervision of Sinopec’s financial statements and internal control and audit mechanisms, as well as the communication between the external auditor and the company. Due to their special purpose, independent directors have to represent the majority of the seven members of the committee.

The chairman is also required to be a member of the auditing committee. The remuneration and performance examination committee consist of nine members. Again, the chairman and a majority of independent directors have to be members. The committee develops appropriate criteria for the evaluation of the president’s and board’s performance and examines the legitimacy of the salaries of Sinopec’s top management, namely the directors, president, vice president, CFO, secretary of the board and supervisors. 2. 4. The Secretary of the Board

The secretary of the board is a higher representative of the company. The position of the secretary is required according to Sinopec’s Articles of Association. Directors, the president, vice president, or CFO are allowed to fill the position of the secretary in addition to their main responsibility within Sinopec. With the ‘Work Regulations for the Secretary of the Board’ Sinopec designed guidelines for the position of the secretary. The secretary is elected and removed by the board of directors. The chairman of the board is responsible for the nomination.

The functions of the secretary comprise the assistance of the directors in all daily activities, the preparation of necessary documents for the shareholder’s general meetings and the board meetings, to ensure the correctness of all disclosure-related decisions and procedures, partly the coordination of Sinopec’s external financing and eventually relationship management. 2. 5. The President and Vice-Presidents The president of Sinopec is a mandatory element of corporate governance according to the Articles of Association.

Whereas the board of directors is responsible to elect and remove the president, the board’s chairman is eligible to nominate a candidate. In turn, Sinopec’s president has to report to the board of directors. Moreover, Sinopec has several vice-presidents. Again, the vice-presidents are appointed and dismissed by the board but nominated by the president. Both the president and vice-presidents can at the same time be members of the board of directors. However, the number of double staffing should be lower than Sinopec’s total number of directors.

The tasks of Sinopec’s president relate to the company’s operations and the implementation of decisions made by executive committees like the board of directors. In Sinopec’s corporate governance structure the president’s duties are to coordinate the realization of the annual business and investment plans, to design plans concerning internal regulations and Sinopec’s internal management structure and to set wages, rewards and punishments of the staff. Presidents or vice-presidents who are not directors at the same time can participate in the board meetings, but are not eligible to vote.

Moreover, the president is allowed to design and conduct so-called ‘Work Regulations for the President’, after they have been confirmed by the board of directors he also has to report to. The regulations, for example, include a guideline concerning the use of Sinopec’s liquid funds. If approved by the board, the president has to abide by the regulations and of course, along with the vice-presidents, act entirely in the interest of Sinopec. 3. Sinopec’s ‘Executive Compensation Plan’ The executive compensation plan (ECP) is a major element of Sinopec’s system of corporate governance.

In the year 2000 Sinopec’s board of directors confirmed the ECP which was beforehand developed by an external consultancy. The implementation of the ECP affected the whole upper management of Sinopec and also its affiliated companies. Since then, the salaries of the top management are connected to the operational performance, profit and development of the stock price of the company. The executive compensation plan divides the top manager’s salaries into three major parts: The basic salary, performance bonus and lastly, the share appreciation rights (SAR).

The basic salary for every executive equals Sinopec’s average staff salary multiplied with a factor according to the manager’s position within the company’s hierarchy. On the contrary, the performance bonus equals the executive’s position in the company multiplied with a factor determined by the ECP. Lastly, the share appreciation rights basically represent a stock option. However, unlike to stock options, the share appreciation rights do not alter the number of Sinopec’s outstanding shares and only award the managers with the appreciation in value of the stock.

If Sinopec’s share price exceeds the SAR exercise price, managers have the right to receive the appreciation value of their stock in cash. The percentage of the share appreciation rights in a manger’s compensation package increases with his seniority. Furthermore, Sinopec’s top management yearly signs a ‘self-appraisal performance agreement’ which partly allows the evaluation of management performance on certain key performance indicators. The SARs could change with regard to the result of the performance evaluation.

Sinopec’s system of corporate governance limits the amount of SARs that can be encashed in the first years after their issuance. Both variable elements, the performance bonus and stock appreciation rights, account for almost three-thirds of the compensation of Sinopec’s executives. 4. Inferences and Future Development What makes the Sinopec’s corporate Governance stand out? There is no simple answer to this decisive question – The effectiveness of Sinopec’s corporate governance is the outcome of Sinopec’s whole structure of corporate governance as examined in the previous chapters.

According to analyst’s comments the decentralized decision-making process is one of the factors setting Sinopec apart. The power of decision and authority has been delegated from top management to mid-level and lower management. As a consequence, it is the strategic business units that handle Sinopec’s operations – supervised by Sinopec’s president. The president in turn is supervised by the board of directors, which is again answerable to the supervisory committee and the shareholder’s general meeting.

Moreover does the company abide by all notable international regulations and laws concerning its corporate governance measures: Sinopec follows the ‘Code of Corporate Governance for Listed Company’ (CCGLC) in China, which in turn requires the company to abide by the Chinese company law, the laws of the state economic and trade commission, the requirements of the Articles of Association (see chapter ‘The Shareholder’s General Meeting’) and others. The CCGLC and further necessary regulations mentioned above set the legal framework for Sinopec’s code of corporate governance.

Sinopec’s system of corporate governance undergoes constant progress. In 2010, the company started several measures to further improve the company’s corporate governance in various fields: Regarding compliance, Sinopec started the ‘Walking with Laws’ contest which was entered by thousands of employees. To improve internal control, Sinopec focuses on the development of a guideline in form of an ‘internal control manual’ (by the end of 2009, the manual already included a total of 1331 controlling points and 59 business flows).

Moreover, Sinopec constantly emphasizes the importance of standardized auditing processes within the company. The extensive investigation of the case of Sinopec’s Anyang Subsidiary (Henan Province) shows that the company also strengthens its efforts in investigating breaches. In the field of anti-corruption, Sinopec and several suppliers recently signed the ‘Agreement on Adhering to Business Ethics’, which counters corruption and bribery. Finally, Sinopec promotes the market principles and adheres to the Chinese laws against unfair competition.

5. Sinopec’s Corporate Governance in comparison Sinopec and some other modern Chinese enterprises are now governed by the general meeting of shareholders, the board of directors and the board of supervisors. However, the old corporate bodies still continue to play an important role in Chinese corporate systems and are not easy to remove. We asked us, what makes Sinopec corporate governance so unique compared to Chinese ordinary or unreformed companies. Board of directors

The board of directors has the central position in the legal structure outlined in the Company Law, but the majority of firms recognized under the Company Law do not actually have a functioning board of directors. All firms listed on the Chinese stock exchanges were supposed to have a board of directors with one-third independent directors by May 2003, but among these firms only 62% met that requirement. Party organization It has been held that party organizations should perform duties according to the Party Constitution.

Moreover, trade unions and employees’ congresses should carry out their respective duties in accordance with relevant laws and regulations. Nevertheless, overlap between the old corporate bodies is still common. Party committee leaders of wholly state-owned corporations and also state shareholding corporations can still be included in the board of directors and the board of supervisors in accordance with legal procedures. That is not really reasonable being your own supervisor.

Therefore, employees’ representatives should be included in the boards of directors and supervisors like at Sinopec. Moreover, the Party secretary and the Chair of board of directors can be the same person. In principle, the Chair of board of directors and chief executive officer should be two separate people. Chairman Under current legislation the Chair is the only corporate legal representative authorized to execute contracts and other legal documents on behalf of the corporation.

If other directors are required to represent the corporation in legal relationships with third parties, they must receive a special authorization from the Chair. It is thus inconvenient for a corporation to enter transactions when the legislation permits only a single legal representative. Thus, law reform should include recognition of multiple corporate legal representatives like Sinopec does, in order to achieve transaction efficiency and to provide safeguards for third parties in the market.

Power of the meeting of shareholders In the Chinese legislature, that concerns also Sinopec, the power between the meeting of shareholder and the board of directors should get reallocated. Thus all the ordinary business managerial power could be transferred from the shareholders to the board of directors. Because the CEO also enjoys substantial managerial power under the current Corporate Law, it is possible that there will be a conflict between the board of directors and the CEO when both of them perform statutory power.

To avoid these power struggles, it is essential that the legislation define the power of the CEO in a coherent way. Thus, the board of directors, instead of the shareholders, should become the center of power in the future Chinese corporate governance and the board should have the authority to delegate some managerial power to the CEO or to other senior executives. The board of directors should also have the authority to supervise the performance of individual directors, the CEO and other executives.

Board of Supervisors Having outside supervisors in the board of supervisors should be mandatory for large publicly held corporations. To achieve impartial supervision, the supervisors should be completely independent from the directors and executives. Supervisors should have strong expertise in essential matters, such as corporate management, corporate finance or business law. This is still not given at most of the current Chinese enterprises. Furthermore, the powers possessed by the board of supervisors should be redefined. The current supervisory powers recognized by the Corporate Law are of a postmortem and passive nature.

To enable supervisors to obtain relevant and crucial information, the board of directors should be obligated to report to the board of supervisors on a regular basis. Moreover, the board of supervisors should have authority to take legal actions against directors or executives on behalf of the corporation. The board of supervisors should become a corporate body between the shareholders and the board of directors in the corporate hierarchy, and should hold the power to appoint and dismiss directors. The board of supervisors should also hold statutory decision-making power with respect to fundamental investment decisions or transaction plans.

In addition to comprehensive supervision over managerial activity, the board of supervisors should be required to supervise the financial and accounting activities. Chinese state ownership The China Confederation of Enterprises Survey showed that 61,33% of respondent managers say that government and corporations need to be further separated, 59,67% of respondent managers say that the establishment and duties of state shareholder’s agents need further improvement. In China, the State acts as a majority shareholder in many

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