Question 1 (a)
Three projects out of 11 major are to be approved by the Board of Directors.
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Market Expansion Southward (#7) (EUR30 m) – Sponsoring Manager Marco Ponti
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Developing and introduction of new artificially sweetened yogurt and ice-cream (#9) (EUR 27 m) – Sponsoring Manager Fabienne Marin
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Acquisition of a leading schnapps brand and associated facilities (#11) (EUR 60 m) – Sponsoring Manager Nigel Humboldt.
Total price of three projects – EUR 117 m
Analyzing the projects we can see that from the first view, they are extremely beneficial. The IRR of all three projects are almost twice bigger than Minimum Accepted IRR, required by Euroland’s investments tests. Moreover, these projects are also aimed to conquer the new markets as geographically, so in product range. It seems like this is the winning strategy for Euroland.
But there are certain factors that can show the real situation and highlight the weaknesses of the projects.
Market Expansion Southward – could be the good strategy to expand to the rest of Europe but the reality is that the nearest plant to the South European Market, located in Melun, France, is almost exceed its production capacity and even backed up by the plant in Strasbourg. Thus, the Euroland is already faced the deficit of products for their southern segment of the distribution map. Expansion Southward is totally unacceptable, because it will face the lack of the products and in case with old truck-fleet with logistics problem. Hence, in the highly-competitive environment and capricious customers of South Europe there is a real danger for Euroland to lose the market just after launching the project.
Developing and introduction of new artificially sweetened yogurt and ice-cream – might not be the best strategy for company, whose loyal customers are “sought out its high-butter-fat content, large chunks of chocolate, fruit, nuts and wide range of original flavours” Ice-cream, which gives 60% of the company’s profit is obviously most important part of Euroland. The customers have already accepted the “Rolly”, which is represented by fat dancing bear. So, it is too risky to add artificial products, as customers may not accept that line. Findings of Managing Director for Marketing about competitor’s work are creating doubts, as there are no precise and true information about the job, already done by the competitors. So, it can be pointed out that developing and introduction of new line of artificial product is not crucially important for Euroland.
Acquisition of a leading schnapps brand and associated facilities – Seems to be very attractive and daring project. This segment of market is totally undiscovered by Euroland, so investing EUR 60 m. could be very risky and needs more concise and detailed research. Moreover, Company can face the issues they haven’t had before. There are big underwater rocks like Corporate Social Responsibility that can create big problems for Company without any experience in that sphere. Though, this project is really attractive in terms of IRR it must be researched more carefully.
Besides all the points mentioned above, there are other issues, which can affect the objective decision making.
From the financial side proposed projects are directed to achieve the best IRR in visible future. Having a Debt/Equity Ratio at 125%, Euroland was urged by the President of Banque du Bruges et des Pays Bas, which is one of the major shareholders, that “Restoring some strength to the right-hand side of the balance sheet should now be a first priority. Any expansion of assets should be financed from the cash flow after debt amortization until the debt ratio returns to a more prudent level” Having said that, Bank puts some limits on next year’s spending and that means that projects, which are not going to create direct profit (#5, #6, #10) could be rejected.
Political gamesmanship is generally refers to actions that employees take that are intended to improve their performance indicators- without producing any positive economic benefits. Analysing the profiles of Board’s Members we can create a “list of preferences”, from which we can conclude that approval of the projects could be the political decision rather than efficient economic decision. Besides that, almost every member of the Board has his or her personal wishes to receive more power. Moreover, there are certain alignments exist inside the company, which can also affect the final decision.
Question 1 (b):
Taking into account the above analysis and weaknesses of the projects, I would like to recommend the displacement of some projects, justifying the substitutes.
Market Expansion Southward (#7) (EUR 30 m) – Good strategy for company, which wants to conquer new market but the execution of this project, can be made only in line with other, necessary projects. South market has bigger IRR, more purchasing power and less competition. As Euroland has already got great experience in Western Europe it can use almost the same tools to enter the South market. Plants in Strasbourg, Caen and especially Melun located well to cover the demand in South.
A new plant (#2) (EUR 45 m) – It is proposed to build the new plant in Dijon, France, at the current southern edge of Euroland marketing region. The IRR of this project is 11,3% which is bit more than minimum IRR of the Company. This project is crucially important in supporting the Market Expansion Project. Although the payback period is twice longer than it required, the Plant can solve certain problem. It can unload French plants; allocate the production; supports the South Market and the rest of France.
Replacement and expansion of the truck fleet (#1) (EUR 33 m) – Project proposes to buy 100 new refrigerated tractor-trailer trucks, 50 each in 2001 and 2002. 60 old trucks will be sold for EUR 4.05 m. The IRR of the project is 7,8%, marginally below the minimum of 8%. This project is also crucially important in supporting the Market Expansion. Logistic is the vein of the company and without proper functionality Company will fail to expand. New fleet will also help to improve present logistics and for cost-savings, as trucks are 15% bigger and the new trucks will use less petrol.
Effluent-water treatment at four plants (#6) (EUR 6 m) – This project aimed to replace the current equipment with new, environmentally safe. European Community called to replace the equipment during next 4 years. It is also stated, that this equipment could cost EUR 15 in four years. Although this project has no Internal Rate of Return it has External Rate of Return, as replacing the equipment now could bring brand benefits.
Total cost of 4 projects is EUR 114 m.
Question 2:
The term ‘triple bottom line’, is often attributed to John Elkington, a co-founder and chair of SustainAbility, a sustainable business consultancy (Elkington 2008). Elkington explicitly chose the language to resonate with business managers. As it evolved, triple bottom line reporting has been employed by organizations for a plethora of purposes. Some argue that the primary application is no more that a means for enhancing the organization’s public image (Schilizzi, 2002). Others (Cheney, 2004) argue that it is a method for the organization to show its engaging in legitimate environmentally and socially responsible activities. A third application is an acknowledgement and representation of tradeoffs made among the three components (CICR, 2004)
The triple bottom line is emerging as a popular conceptualization and reporting vehicle for articulating corporate social, environmental, and economic performance and is receiving significant attention in connection with its efficacy and sufficiency as a means for reporting the extent to which an organization meets its societal responsibilities. By preparing and disseminating triple bottom line statements, an organization conveys an image of concern and sensitivity to the three dimensions of societal responsibility: economic, environmental, and social.
The alcohol industry has a dilemma. They want to shift their products but they don't want the bad publicity associated with binge-drinking teenagers. This is a major CSR issue for the industry - how to make a profit without damaging its customers and thus its bottom line. One of the CSR solutions the industry has identified is through the setting up and funding of a charity. This charity survives through donations from many of the main alcohol companies selling into the Europe. The charity runs education campaigns to help wean the UK off some of its more unpleasant alcohol-related habits.
A key potential benefit from CSR initiatives involves establishing the conditions that can contribute to increasing the commitment and motivation of employees to become more innovative and productive. Companies that employ CSR related perspectives and tools tend to be businesses that provide the pre-conditions for increased loyalty and commitment from employees. These conditions can serve to help to recruit employees, retain employees, motivate employees to develop skills, and encourage employees to pursue learning to find innovative ways to not only reduce costs but to also spot and take advantage of new opportunities for maximizing benefits, reduce absenteeism, and may also translate into marginally less demands for higher wages.
Consumers increasingly don't accept unethical business practices or organizations who act irresponsibly. Advances in social media mean that negative or destructive practices quickly fuel conversations online.
Carefully implemented CSR for project #11 can bring its benefits:
- Win new business;
- Develop and enhance relationships with customers, suppliers and networks;
- Attract, retain and maintain a happy workforce and be an Employer of Choice;
- Differentiate the Company from its competitors;
- Generate innovation and learning and enhance your influence;
- Improve your business reputation and standing
- Provide access to investment and funding opportunities
- Generate positive publicity and media opportunities due to media interest in ethical business activities
Financial and non-financial CSR politics
In the case of Euroland Foods, the implementation of Effluent-water treatment at four plants can be the step toward exercising the CSR in practice. The outcome of that project can be used to strengthen the positions of the Company in the eyes of stakeholders and customers. Being one the major problem nowadays, reduction of emissions is one of the primary goal for almost every company, which has plants and production lines.
Analysing the CSR already implemented in different companies we can draw the main points of successful CSR politics:
- Contribution to greenhouse gas emissions through energy use and other parts of your process
- Use of raw materials, both nonrenewable resources which by definition are not sustainable in the long term, and as importantly renewable resources which are produced in a fashion which is not currently sustainable.
- Potential for environmental accidents - releases of pollutants into air, water or land.
List of References:
1. Documents de Treball. Triple bottom line: A business metaphor for a social construct. Darrell Brown, Jesse Dillard, R. Scott Marshall, Departament d'Economia de l'Empresa, 2006
2. Elkington J, Marc J. Epstein. Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts, Greenleaf Publishing Limited, 2008
3. Sri Urip. CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging Markets, 2010
4. , Jean-Baptiste Lesourd,The Environment in Corporate Management: New Directions and Economic Insights, 2002
5. , , . The Debate over Corporate Social Responsibility, Oxford University Press, 2004
Darell Brown; Jessie Dillard; R. Scott Marshall. Documents de trebail. 2006 p,7