Current Events Analysis Paper sample

IMPACTS OF THE KRAFT-HEINZ MERGER ON GLOBALIZATION AND WORLD TRADE

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Review of Situation

In the beginning of 2015, the H.J. Heinz Company and Kraft Foods Group announced merger plans to create Kraft Heinz Company. The merger was finalized on July 2, 2015. Investors Berkshire and Hathaway held 51% stake in this merger while the remaining 49% stake was publicly held (Chaboud, 2016). Following this merger, shareholders anticipated huge returns, increased global market dominance, and decreased costs. The global reach of Heinz would enable the merger to increase revenues and profits by bringing on board some of Kraft’s big-name products, like Planters, MiO, and Velveeta, to the global market. The cost savings were expected to come from reduced human capital and increased bargaining power with retail outlets, restaurants, and food companies. The merger expected to save costs amounting to $1.5 billion per year by 2017. These cost savings resulted from economies of scale from the North American market. The revenues of Kraft Heinz were estimated to be about $28 billion (Anwar, 2019).

Analysis

Following the merger, the Kraft-Heinz Company has become the third-largest U.S. food and beverage firm and fifth-largest globally. The merger has brought the popular food brands, such as Capri Sun and Heinz Tomato Ketchup and HP sauce, under single control. The Kraft-Heinz Company has dominated three primary regional segments: Europe, the United States, and Canada. The combination of brands from Kraft and Heinz has provided a reliable avenue for growth in North America. Following the merger, the assets of the company increased two folds in 2016 compared to 2014. Besides, the cumulative returns were about 7.1% by 2016 (Anwar, 2019).

The key stakeholders from Heinz Company and Kraft Foods Group were involved to deliberate on the way forward regarding the unification of the companies’ cultures. The management of the two companies involved employees, shareholders, customer representatives, suppliers, distributors, and other parties in briefing them on the acquisition plan. The views and suggestions of the stakeholders were considered in shaping the new culture of the merged companies. The merger process needed to be managed with caution through effective communication to all affected individuals and institutions.

Potential Impact of the Kraft-Heinz Merger on Globalization and World Trade

Global market dominance

Currently, the Kraft-Heinz Company has over 20 global brands. Some of the big-name products of Kraft-Heinz are Oscar Mayer, Velveeta, ABC, Planters, and Capri Sun. The Kraft-Heinz merger helped combine resources and expertise to conquer new markets (Bresciani, 2017). It also helped in offering high-quality and affordable products and services to the customers. Kraft-Heinz could continue to dominate the global food and beverage market due to its huge financial resources, human capital, and expertise. It means, therefore, that the Kraft-Heinz merger has the potential to increase competitiveness in the global food and beverage industry. As such, firms in this industry will need to innovate to minimize their production and operational costs in order to maintain a competitive advantage.

Kraft-Heinz aimed at achieving a strategic advantage to overcome the competitive forces in the global food and beverage industry (Kinicki & Fugate, 2015). The Kraft-Heinz merger resulted in the creation of a shared vision that represents the interests and aspirations of the stakeholders. A shared vision offers a new direction that can guide the operations and mission of the formed entity. This strategy can enable Kraft-Heinz to overcome competitive forces in the global food and beverage industry.

Streamlining supply chain visibility

TheKraft-Heinz merger can streamline global supply chain visibility to eliminate wastage and focus on establishing a long-term strategic relationship with customers. Effective supply chain management is the basis of gaining insights about demand levels and customer behaviors. Kraft-Heinz has, in recent years, used these insights to manage optimal inventory and ensure that it reduces costs and risks (Bresciani, 2017). The management considered working closely with its supply chain partners to minimize the costs and risks of operations and improve returns. 

Leveraging on distribution strategies to meet international demand 

The Kraft-Heinz merger has led to the creation of a robust global distribution network of food and beverages. The company has a robust distribution system that assists in linking with distributors, retailers, and consumers efficiently directly. The well-coordinated distribution system can help the Kraft-Heinz Company to avail its products to global retail stores consistently. It means, therefore, that the Kraft-Heinz merger could continue to produce a wide variety of food and beverage products to meet increased global demand.

Implementation of standardized training programs

The Kraft-Heinz merger aims at offering standardized products and services worldwide. For this reason, the company requires hiring competent and talented employees who have standardized skills to meet the expectations of the global market. Multinational organizations employ performance appraisal for their employees to address the skill gaps. Performance appraisal aims to ensure that employees meet the set standards in satisfying the needs of the customers. As such, the Kraft-Heinz Company will need to offer standardized training to its workforce to provide high-services to its customers. Standardized human resource management practices and policies can enable companies in the global food and beverage industry to create a workforce that has the skills and knowledge which meet international standards. It will, therefore, be crucial for multinational companies to invest in training for different needs of their managers and employees. 

Socio-cultural challenges

Being a multination corporation, Kraft-Heinz is likely going to face socio-cultural challenges in its efforts to penetrate global markets. The company may face socio-cultural factors such as beliefs, values, and aspirations of the communities where it is operating. For instance, some communities treasure American commodities, while others despise them. Multinational companies, like Kraft-Heinz, need to align their goals and policies with the socio-cultural values and aspirations of the local communities. These companies have to incorporate the socio-cultural elements of the locals in their products, marking campaigns, etc. International managers need to have skills and knowledge regarding the socio-cultural practices of the local people (Noe, Hollenbeck, Gerhart, & Wright, 2017). Multinational corporations in the food and beverage industry will try to align their human resource management policies with the socio-cultural aspects of the communities in areas they are operating. 

Conclusion

Shareholders of newly formed the Heinz-Kraft merger anticipated huge returns, increased global market dominance, and decreased costs. The Kraft-Heinz Company has dominated three primary regional segments: Europe, the United States, and Canada. Kraft-Heinz merger has the potential to increase competitiveness in the global food and beverage industry. The company has a robust distribution system that assists in linking with distributors, retailers, and consumers efficiently directly. However, Heinz-Kraft may face socio-cultural factors such as beliefs, values, and aspirations of the communities where it is operating. 

References

Anwar, S. T. (2019). Kraft’s acquisition of Cadbury: Was it an amicable transatlantic merger or a hostile takeover?. Thunderbird International Business Review, 61(2), 439-451.

Bresciani, S. (2017). Open, networked and dynamic innovation in the food and beverage industry. British Food Journal, 119(11), 2290-2293.

Chaboud, I. (2016). The 100 billion dollar Heinz-Kraft deal. Strategic Direction, 32(6), 5-7.

Kinicki, A., & Fugate, M. (2015). Organizational behavior: a practical, problem-solving   approach. McGraw-Hill, NY: McGraw-Hill Higher Education.

Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2017). Human resource         management: Gaining a competitive advantage. New York, NY: McGraw-Hill     Education.