Butlers Chocolates Analysis Essay

Butlers Chocolates is an Irish appurtenant private manufacturer of premium chocolate and chocolate products. It works in the industry of chocolate, ice-cream and candy manufacturing. The manufacturer is headquartered in Dublin, Ireland. Butlers Chocolates was founded in Lad Lane in 1932 and it celebrated its 80 years of being a distributor of happiness in 2012. The manufacturer employs 250 people across manufacturing, shipping, packing, cask payments, sales and marketing, innovative production evolvement and Butlers Chocolate Cafes (History 2013). It is available in over 35 countries. Moreover, in 2012 Butlers Chocolate opened two overseas offices, in Singapore and in Dubai in particular in order to service the Asia-Pacific area together with the Middle East (Who we are 2013). The company opened the first café in Dublin in 1998 and has established 17 Butlers Chocolate Cafes since then. Three of them were opened in Dublin, and all others appeared in Cork, New Zealand, London, Galway, Karachi, Pakistan, Westfield, Clonshaugh, and Lahore. The manufacturer has introduced its chocolate to many lovers across the world, from Shannon to Sydney and from Dublin to Dubai. In fact, the company is on sale in over 35 countries, including Australia, the USA, the Russian Federation, Singapore, and England (About us 2013).

Butlers Chocolates SWOT Analysis

SWOT analysis is a well-defined and structures planning method. It is used to estimate internal factors, including strengths and weaknesses, and external factors, including opportunities and threats. Internal factors encompass the internal situation of the company, whereas external factors present the external environment to the organization (Humphrey 2005).

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Strengths

  • First, the company has a lot of individual, premium, and secret recipes.
  • Secondly, it posses a unique concept, which encompasses the relaxing café ambience and Butlers Chocolate café, both offering the highest quality retail outlet.
  • Thirdly, the manufacturer introduces a number of innovations, including the mail order gifts, Internet marketing, club membership, and discount schemes, which helped the company to raise their general sales (Scott 2013).
  • Fourthly, the company developed the entrepreneurial concept, with the help of which, the manufacturer tries to market chocolates with the help of coffees, in order to increase the sales.
  • Fifthly, Butlers Chocolate Café carried out an environmental scanning before starting with the concept of chocolates with coffee. It helped to check whether the idea is working in the market or not.
  • Finally, Butlers Chocolates is a chocolate leader in a number of big markets, including UK and the USA (Butlers Chocolates 2013).

Weaknesses

  • First of all, it is considered that manufacturer has a relatively low promotions and advertising budget (Cleveland 2000). Most of their innovations and unique products are either unknown for the average person or poorly advertised. This shows the low market awareness of the brand.
  • Secondly, there is the risk of production line issues.
  • Finally, the company does not have the full access to the system in order to make any possible modifications due to the fact that Butlers Chocolates bought the hardware and backup facilities, while the software technical equipment and Labyrinth stayed the same.

That is why it is crucial for further development to be able to save and update the site itself (Butlers Chocolates 2013).

Opportunities

  • First of all, there are franchise opportunities in foreign markets.
  • Secondly, there is the opportunity to expand the airport retail model.
  • Thirdly, Butlers Chocolates is to widen their Butlers Chocolate Cafes’ network into the USA. The premium chocolate manufacturer is to open the first retail outlet in New Jersey with further openings, which are believed to appear during the following 18 months (About us 2013).
  • Finally, Butlers Chocolates opportunities concern technological innovations.

The explosive growth of the computer and informational technology influences the way manufacturer brings value to the customers. It is hard to measure the value of a Web site, but it is obvious that the company has made a lot of money form the Internet efforts. In fact, all new technologies create new opportunities and markets. That is practically why the web-department should watch the following trend in technology in order to raise the online purchases (Scott 2013).

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Threats

The first group of threats concerns economics and shows that there might be a decrease in the customer’s demand. Thus, the manufacturer has to be strongly market focused. Secondly, there is the treat of the competitive price pressure. Due to the intensive growth of such discounters and Lidl and Aldi, there are numerous threats from substitutes. Finally, there is the threat of higher input prices, which will be provoked by the increase of competitive prices around (About us 2013).

PESTEL Analysis

Political factors show to what degree the government intervenes in the economy of the country. Kuwait is a constitutional monarchy. It is an independent sovereign Arab State (Kuwait Constitution Part I n.d.). The monarchy is ruled by Emir. Such status is provided as a heritage from the previous Emir. Despite the fact that Kuwait is claimed to be a democracy, the Prime Minister and most of cabinet ministers are appointed by the Emir and not by the general population. It practically means that most cabinet ministers are from the ruling family. Moreover, Prime Minister is often a crown prince. He is chosen by the royal family. 50 members of the National Assembly are elected from five different districts. Ten members are selected from each district. The participation in the National Assembly is allowed to the native Kuwaiti or so-called “naturalized” people, who have lived there for more than 20 years (Kuwait Constitution Part I n.d.). These might be both men and women, over 21 years old. The National Assembly creates laws, which are later approved by the Emir. There are 16 cabinet ministers, who are also to attend the National Assembly. The National Assembly is selected for four years. Moreover, the Emir has the constitutional right to dissolve it (Kuwait Constitution Part I n.d.). However, the National Assembly has the right to reject the selection of the royal family concerning the crown prince and offer three different candidates from the direct descendant of the Emir (Cleveland 2000).

There are several political parties in the Kuwaiti government: Islamic Salafi Alliance, the Islamic Constitutional Movement, National Islamic Alliance, Popular Action Bloc, National Democratic Alliance and Justice and Peace Alliance in particular (Cleveland 2000). The Emir is the person responsible for the assigning of the judges to courts. This is done together with the Ministry of Justice. It is known that Kuwait does not accept International Court of Justice jurisdiction (Cleveland, 2000). Despite the fact that Kuwait is the most moderate and liberal society in the region, the country is still seen as conservative from the Western perspective. Approximately 30% of Kuwait population are discriminated. The discriminations are usually based on the religion. In fact, Sunni government creates many barriers for Shia people. It concerns additional checking at the airports, freedom of speech towards Sunni, deficiency of Shia court of appeal, limitation of Shia political advertising. During the last six years, National Assembly was disbanded 5 times. The last time it happened on the 20th of June 2012 (Sadek 2013). Actually, every new National Assembly questions the members of the royal family for corruption. However, the Al Sabah family is very strong, that is why the outcome is obvious (Cleveland 2000).

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Economic factors show how the business operates and makes decisions. Kuwait has a relatively small, wealthy, and open economy. The major source of profit is crude oil. The oil makes approximately 95% of country export and Kuwaiti government profit. Kuwait is geographically small as the country, but it has 9% of the global oil deposits. It holds the 5th place in Organization for Petrol Exporting Countries (OPEC). Kuwaiti GDP was more than $ 200bln in 2010. The GDP is 55% thanks to the oil sector, private sector encompasses 34,8%, transportation and communication makes 15,2%, financial sector encompasses 25,5%, and manufacturing makes 9,7% (World Bank Development Indicators 2008). In 2010, Kuwaiti government took two initiatives in order to provide higher diversification of the economy. The first one allows selling government property to private investors, and the second one provides $130bln of the monetary package, which has to be spent during five years in order to boost the foreign direct investments and private sector participation in the economy. Kuwait imports mainly from the US and the UAE. The top priority products the country has to buy abroad are food and beverages, construction materials, products of automotive industries and clothing. The general volume of Kuwaiti export was close to $ 22 billion in 2011 (Kurt 2003).

Social factors affect the demand for various products and the way any company operates. In Kuwait live 2.7 million people: 1.3 million of non-Kuwaiti citizens and additional 900 thousands temporary together with those who have invalid visas. 85% of people are Muslim, the rest are Hindu, Christian, Parsi etc (Kjeilen 2013). Arabic is the major language; however, the English language is widely used. It is obvious that women in Kuwait do not enjoy the similar level of freedom as women in the western World, but still they are more powerful than in some radically Islamic countries, such as Saudi Arabia. In fact, women have the right to own property, to drive a car, to move within the country and abroad, to be elected, to vote, and to work. Approximately 70% of Kuwaiti students are actually female (Kjeilen 2013). According to Hofstede dimensions (Appendix A), Kuwait has a very high number for power distance, as it prefers centralized organizational structure; the ideal boss for Kuwaitis is autocrat. The second parameter, which stands for individualism and is quite low, means that Kuwait is a collectivistic community. It practically shows that various personal, inner-group relationships are believed to be more important than the law (Myers & Tan 2002). All employee-employer relations are affected by personal connections. The third parameter that stands for masculinity versus femininity is more low than high. The society is relatively feminine, which is shown in situations as conflict resolution by negotiations and compromises, and the focus on well-being (Myers & Tan 2002). The last parameter stands for uncertainty avoidance, and it is high. The main motivator for people to work is the fact that security and innovations may be resisted. There is no data provided for the parameter of long term orientation (Kuwait 2013).

Technologic factors identify the barriers to entry, and minimum efficient production level. Kuwait almost does not produce any high-technological solutions. Moreover, there are no renewable energy sources in use (Anandarajan, Igbaria & Anakwe 2002). Nevertheless, there is some movement towards high technology evolvement. The 21st century depicted a high growth in the Internet usage, in the Middle East Kuwait in particular. The growth is substantial in the Gulf Cooperation Council (Loch, Straub & Kamel 2003). The Internet penetration has increase by 300% in Kuwait between 2000 and 2005 (Rouibah & Hamdy 2009).

Legal factors can affect the way a company operates, the costs and the demand for its products. Kuwait is a member of GCC custom union. That practically means that all of the products manufactured in those countries can work more freely across borders. In fact, the custom union will take such goods as if they have been produced in GCC only if 40% of product value has been subjoined in these countries and if GCC citizens own 51% of the company capital (Cleveland 2000). Kuwaiti legislation requires presence of local agents, distributors within the country. The licenses for import from Ministry of Commerce are valid for one year. They are renewable and allow multiple shipments. Only the local agent is able to get goods at the custom by presenting a letter of representation (Sambidge 2012). Kuwait has extremely warm tax environment for doing business. Corporate income tax is applied only to foreign entities carrying on trade or business. Tax rate of 15 % is applied to the following incomes – royalties, franchise, license, trademark, patent, and copyright fees received by foreign entities from Kuwait.

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Environmental factors may especially affect industries such as farming, insurance, and tourism. Kuwait is a country with a desert climate. Such type of the climate is famous for its aridity and hotness. It is possible to distinguish four seasons. Summer is extremely hot, autumn is quite warm with numerous thunderstorms, winter is relatively cool with frequent fogs, and spring is warm with thunderstorms, heavy rains, and cool winds (Kurt 2003).

Porter’s Five Forces Analysis

Porter’s five forces analysis is a special framework for industry analysis and strategy evolvement. It encompasses five factors, including treat of new entrants, power of suppliers, power of buyers, availability of substitutes and competitive rivalry. This analysis does more than just observing the direct competitors of a particular company. Such an analysis looks at various sides of the industry’s economic profile and environment together with the competitive structure. The idea is to observe each of these aspects and estimate the degree to which they raise the level of the competition in the industry. If the forces analysed are strong, they will raise the competition level in the industry, whereas if the forces are weak, they will decrease it. The competitive environment of an industry has a strong influence on the activity of businesses within that particular industry. Porter’s five forces define whether the industry is appealing or not from the view point of a company competing in the particular industry. Moreover, the appealing industry is the one, which provides the facilities for profitability (Peng 2009).

The degree of rivalry. The degree and intensity of rivalry is the most obvious force out of five. It helps to define the measure to which the value created by the industry will be dispelled through head-to-head competition. The industry’s intensity of rivalry among competitors is medium. It is due to the fact that industry has numerous, equally balanced competitors, including Mamar General Trade Cont Co, Godiva, Alkazemi Food Industries, Al Ammed Coffe Chocolate and others (Chocolates in Kuwait 2013). In fact, the competition is tougher with the already established players. This factor is decreasing the intensity in the particular force. The industry is slowly growing. It has huge storage and fixed costs, and has low exit barriers. Moreover, there is a high scope for growth, which is aided by rising population and disposable income. All of these conditions create price wars, while advertising new product lines, and higher quality of customer service in the industry (Peng 2009).

The threat of entry. In this case, the threat of new entrants is low. Both future and already existing competitors affect general industry profitability. It is known that the threat of new entrants is usually based on the market entry barriers. According to Kuwaiti Commercial Law 68 of 1980, no foreign company cant establish a branch or do any commercial activity in the country if not doing it through the local distributor or agent. There is a rising demand for the chocolate products due to the rising population. The industry is characterized by the highly regulated markets and limited pricing power. These factors are decreasing the intensity of the force. Nevertheless, the financing options are easy. Such factors as the existence of economies of scale, the difference in products, the need for large capital requirements, the existence of switching costs, the lack of access to distribution channels, and the regulations that are in place for the food manufactures create the basis for the low treat of new entrants. In addition, the brand name is well-known and the initial capital investment is high (About us 2013). A low threat of new entrants proves that the industry is more appealing and raises the profit facility for the companies, which are already competing within that industry (Peng 2009).

Barging power of buyers. The bargaining power of buyers is medium. However, it is raised by two aspects: a number of large volume purchasers on the one hand and the general purchasers’ low profits from the product on the other hand. There is also the lack of backward integration and the firmness on the industry’s product (Wilkinson 2013). Such factor as highly differentiated offerings increases the intensity of the force. Nevertheless, there are very few players in a particular food segment, and such fact decreases the intensity of the force. Finally, there is a highly regulated pricing system, which definitely increases the bargaining power of buyers (Who we are 2013).

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Bargaining power of suppliers. The bargaining power of suppliers is decreased as the industry is an important customer of the supplier group, and suppliers do not pose a threat on forwarding integration. Nevertheless, the bargaining power of suppliers is high. There are no substitute products. In addition, the supplier’s product is of high importance to the industry (Wilkinson 2013). Food prices largely depend on global prices as the region imports most of its food requirements. There is the low supplier concentration. In addition, the adverse input price fluctuation might cut profitability. All these three factors decrease the intensity of a particular force. They also depict the decrease of intensity of a particular force. As the substitute products are almost not available in the marketplace, the supplier’s barging power is high (Peng 2009).

Threat of substitute products and services. The level of treat of substitutes is low due to the fact that industry is dominated by large companies, having diversified offerings, which helps it to be less elastic to various price alterations. Moreover, large companies enjoy economies of scale. The consumer change-over costs are high. In addition, substitute products are more expensive than the industry products, and the quality together with the performance of the substitute product is beneath the industry’s product quality. This definitely makes the industry more appealing and raises the profit facility for the companies in the industry, while high treat of substitute products makes it less appealing and decreases the profit facility (Wilkinson 2013).

Mode of Entry

The selection of an institutional arrangement, meaning the mode for entering or expanding in a foreign market is one of the most important strategic decisions that an international firm has to make. A well-selected mode can provide the possibility for a company to receive competitive advantage (Osland, Taylor & Zou 2001).

The four main alternatives are exporting, joint venture, licensing (franchising), and wholly-owned subsidiaries. Butlers Chocolates has entered London, England, and the U.S. with the help of joint ventures (Butlers Chocolates enters the UK and IS markets 2009).

Joint venture might be in favour due to several reasons:

  • First of all, the risk is shared by each partner.
  • Secondly, it allows having the control of the market with resource commitment (Rogmans 2013).
  • Thirdly, it makes the adaptation and the standardization strategy to the local market easier.

The company will be able to benefit from the local partner, as the knowledge will be shared. Joint venture is favourable when the partner’s strategic goals converge, the competitive goals diverge, and partners are able to learn from each other while limiting access to their own proprietary skills (Foley 1999).

Franchising system supplies with longer agreements and the franchisor provides a wider package of resources and rights. Such package usually encompasses the equipment, managerial systems, initial trainings, operational manual, site approval, and all support necessary for the franchisee to turn the business in the same direction it is done by the franchisor. Moreover, franchising is limited to trademark and operating know-how of the business (Rogmans 2013).

Such entry of mode has numerous advantages:

  • First of all, it faces low political risk.
  • Secondly, the general costs are low.
  • Thirdly, it allows conjoined proliferation into various regions around the globe.
  • Finally, well chosen partners bring managerial capabilities as well as financial investment to the operation.

Nevertheless, there are also several disadvantages of the international franchising mode. In fact, franchisees may turn into future competitors (Rogmans 2013). Their demand may be scarce at the beginning of a franchise company, which can lead to making agreements with the candidates. This will ruin the company’s name and reputation in the market (Loch 2001). Finally, franchising requires a higher financial investment to attract prospects and support and manage franchisees (Sherman 2004). In 2006, Butlers Chocolates tried to set-a-going of the Butlers Chocolate Café concept on the international level. They planned to do that by well-motivated and capable franchisees. The company believes that this is a perfect method to show Butlers Chocolates to a wider audience (Hoy & Stanworth 2013). It allows combining the expertise and the local knowledge of franchisees based on the broader audience. This will ensure the maintenance of the products and service quality. There will be no restrictions on location. In fact, Butlers Chocolates are committed to continue the roll-out of international franchise operations (Franchising 2013). They propose a franchisee to deal with one and only store franchise. In particular cases, they provide the right to enter into an Area Development Agreement (Butlers Chocolate Café Limited 2013). Practically, these two entries of mode are to be chosen while introducing and expanding the company in Kuwait (Streib 2007).

Two strategic rules might be used by Butlers Chocolates while entering a foreign market

  • First of all, they should operate the business through joint venture by searching a popular an enriched local firm if there is a need to consider economic scale, politics and culture differences.
  • Secondly, if the company wants to start with a low commitment entry mode, it is better to apply franchising, which will allow to move to a great level of ownership and controls as they develop the requisite local knowledge.