The economic environment consists of factors that influence the consumers buying power. A consumers buying power will depend on many economic trends such as income, prices, savings and credit. Therefore it is important that marketers become aware of these trends that significantly influence the consumers spending patterns and buying behavior. Arnott’s is a multinational company in Australia and many other foreign countries
The major threats, opportunities and trends, the economic environment has posed to the marketers of Arnott’s, are factors that have had significant impact on the stability of the company.
In 2001 Arnott’s experienced its most significant threat to the company especially, to its employees. Arnott’s closed its Burwood manufacturing plant in Melbourne, which resulted in 550 employees loosing their jobs. The most highlighting economic effect to this situation was that the total budgeted cost for the “reconfiguration” exceeded $30 million, in addition causing a reduction in production operations and hence the profitability and capital of the company. Arnott’s marketing managers will have to find its funds from its other invested companies in order to allocate the costs from its reconfiguration decision. It was suggested that the closing of the Arnott’s manufacturing plants were a result to management problems of low profile and persistent labour. As a consequence the company has lost a potential market, consumers in this market will shift their buying behaviour and decisions to other biscuit companies as Arnott’s will no longer be available to them therefore the company will also loose both its profits and its consumers. Another relative threat for the company was the Australian government. The food processing industry has been a target of State and Federal governments who attempt to induce higher exports, which in effect has caused hundreds of dollars and hence in addition a reduction in consumer buying power as exports become limited and prices increase. The outcome was a management system that was a highly formal beaurocratic organization, and in addition, slow and ineffectual. Managers on salaries of $70,000 a year took their instructions from junior employees. This management system clearly could not have delivered the levels of continuous productivity improvement that Campbell applies as a benchmark to their global operations, therefore slow productivity and reduced net profits are significant economic threats for Arnott’s marketers.
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Major economic opportunities Arnott’s has faced have been both negative and positive influences.
The most highlighting experience of opportunity for Arnott’s was when Campbell’s Soup of Canada purchased Arnott’s biscuit in 1990. Arnott’s consisted of more than 3, 000 employees. In 1997 the company recruited more than 168,000 employees and had a turnover of $47 billion. The industry has faced a rapid growth in consumer demand in both domestic and international markets, some 50% higher than manufacturing as a whole. Besides having a large domestic market, Australia offers to multinational firms a positive and competitive region for exporting to Asia. Australia offers a formal attractive place to live, for European and US companies than almost any other country in the Asian region. Thus, expanding consumption and the brand power of its products. Moreover, Australia has experienced excellent economic fundamentals for the better part of the decade and in particular, in recent years has had a super-competitive exchange rate; this will influence consumption as more consumers take advantage of cheap imported goods. These economic factors can provide significant opportunities for Arnott’s on both the international and domestic front by increasing their market share and profitability.
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More and more consumers will recognise Arnott’s brand power and therefore influence more consumer’s buying power spending patterns. However, Arnott’s and many other companies in the same industry have missed their windows of opportunity even though they could have attracted many Asian markets. As a result, Australia is not only facing the loss of export opportunities, that could have significantly influence positive economic conditions, but has divested in plants serving the domestic market as well. Both the international and domestic regions were both economically ineffective for the organization. A more positive window of economic opportunity for Arnott’s is the representation of Arnott’s in the CSIRO technologies or the Built Environment function. The aim was for the company to invest on Australia’s largest Research and Development investment in the building environment sector in which CIRO has promised $105 million to undertake research to develop new products and technologies over the next three years. The program is designed to give Australia a place of opportunity in the competitive global environment. The program promises exciting and challenging new opportunities to keep Australia at the forefront of emerging global technologies (ref).
Major benefits will be in saved time and cost and also more predictability in their business operations. Competitive advantage will increase consumer buying behavior and profitability for Arnott’s, because of its investment in technological development.
In previous years, being the largest manufacturing sector, the food-processing sector became an important economic trend in terms of export. Over the 10 years to 1996, world trade in the processing food sector more than doubled to US $464 billion with the fastest growth in terms of consumption, being in our region. However ineffective management and government influence shifted these advantages into an economic downturn. Moreover, other trends that Arnott’s has faced is the decline of exports and productivity and in addition the cutbacks of labour by the industry. These economic factors can in effect also loose its consumers especially that it is clearly evident that the process of decline is locked in and will be difficult to reverse.
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In response, instead of focusing on the external factors of the company, such as the international and domestic markets of Arnott’s, the company should divert their attention to the internal environment, especially because it is where most of the companies’ problems are caused. Investing in CSIRO’s R&D project will improve the productivity of Arnott’s, that they are generally lacking and will also accelerate the company’s research and development activities. Not only will competitive advantage take place but consumer awareness will also expand, influencing consumer buying behavior and spending patterns.
In response to the threats, opportunities and trends of Arnott’s, it became an obvious decision for Arnott’s to close its Burwood site. As a consequence the company was already facing low productivity and a decline in exports as a result to poor management, therefore it saved many economic variables of the company such as a decrease in export productivity, the prevention of inducing higher prices and the exceeding costs to cover an improvement on operations and management. In addition it is evident that the governmental limitations on export and the reduction of it also inhibited marketers of Arnott’s to close the site as it would have also forced the company to increase its prices in order to cover high export and production costs. Arnott’s marketing managers will have to find its funds from its other invested companies in order to allocate the costs from its reconfiguration decision. Much of Arnott’s negative economic trends that have already reached decline are locked in place therefore like other food manufacturing facilities, Arnott’s should disinvest and shift their production facilities offshore or borrow capital from its stakeholders or other Arnott’s subsidiaries to fund and improve the productivity and internal operations of the organization. If the company wants to gain back its competitive advantage in exportation then marketers should take serious consideration and strategic approaches, in the economic opportunity of CSIRO’s project. This will help regain the impressive reputation in export that the food processing industry experienced over 5 years ago and thus improve consumption in both domestic and international frontiers.
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