EXTERNAL ANALYSIS FOR TYSON FOODS

Introduction

Tyson Foods Inc. is an American based company which has its speciality in the meat

offerings like value added chicken, and red meat including beef and pork. The company makes

its product offering to the retailers, food service distributiors, returants, and national fast food

and full service restaurant chains (one source, 2011). Among the largest food processors in USA,

it holds second postion where Brazilian JBS S.A is listed at number one. The business operation

of the company are of wide nature which includes contract growing, chicken raising, feed

production, food processing etc. Tyson has also operations in the poultry business. The company

is having a joint venture with the companies from China for its poultry division (one source,

2011).

According to Forbes (2010), Tyson is one of the largest companies in the world which is

enaged in the meat production and processing. Moreover the company is listed in the top

hundred companies of Fortune list. Tyson Foods is currently listed at number 87 in the Fortune

1000 companies list (one source, 2011). As of 2010, it employed over one hundred thousand

employees in its manufacturing units aout of which over ninety thousand employees were

employed in the United States and more than fifteen thousand employees were in foreign

countries, primarily China, Mexico and Brazil. The company has over six thousand contract

chicken growers currently working (Tyson, 2010).

SWOT Analysis

SWOT Matrix

The SWOT analysis of Tyson Foods is as follows:

Strengths Brand equity Strong management

Weaknesses

Legal procedings

Diverse portfolio Weak profitability

Opportunities

Expansion High demand for organic products Acquisitions

Threats

Competition Economic slowdown Product substitution

Strengths

It is the one of the largest meat processing companies in the world (Forbes, 2010). The

company enjoys unique market position. This strong market position is due to the number of

brands it is offering in the market. The company enjoys diverse portfolio of products and mainly

covers four broad divisions: chicken, prepared food, beef and pork. The management at Tyson

Foods holds strong position and is the key of its success in the markets. The company has

employed vertical integration to all of its business units especially in its poultry production

division (Tyson, 2011)

Weaknesses

Tyson Foods have been the victim of various legal provisions against it. Among them are

the broiler room size issues, lawsuits for water and air pollution, ammonia discharge and

phosphorus pollution related issues, and discrimination cases for the African American

employees. It has paid large sums of money for the settlement of the cases. Together these and

all other operating costs and the costs of doing business impact its business operations in terms

of profitability, revenue and the sales (USSEC, 2010).

Opportunities

The company can expand its business operations to the other regions of the country as

well as around the world. The developing markets of Asia represents certain level of charm to

the large number of companies in terms of high profit returns and increased market shares. In

August 2009, the company completed the establishment of important joint ventures in China

referred to as Shandong Tyson Xinchang Foods. The average purchase price for the sixty per

cent equity interest was over twenty million US dollars, which excludes more than ninety million

US dollars used for cash transfer to the joint venture for future capital needs.

Moreover, In October 2008, the company acquired three vertically integrated poultry

companies in southern Brazil (Tyson, 2010). These strategic acquisitions have profound impact

on the business and the revenue of the company. The company can utilize the resources from

these acquisitions to master the production of fresh and organic products in order to satisfy the

large number of customers across borders.

Threats

Tyson is facing three main external threats that can negatively affect the profitability and

the sales of the company. Among them is the level of competition faced by the company in the

markets. Tyson faces stiff competition with its counterparts who are trying hard to win the

markets by their strategic choices and their applications. Its main competitors in the local

markets are Cargill, Incorporated, Pilgrim's Pride Corporation and Smithfield Foods, Inc.

respectively. The economic downturn is another problem faced by all the companies in the

markets. The US government has predicted that the economic slump will continue to the coming

years. In order to successfully deal with the economic downturn, patience and effective strategies

are required. These economic conditions have severely disturbed the confidence level of buyers

and they have almost retrieved from buying expensive products (Hitt, 2009). If these situations

continue to prevail then the likelihood of Tyson’s weak profit ratios will increase dramatically.

The increasing prices of products especially meat can lead people to shift their food choices to

vegetables. The people are less able to buy meat and other related items due to their inability to

purchase. This can lead to the big problem for Tyson Foods Company.

PESTEL Analysis

The PESTEL analysis contains the analysis of Political, Economic, Social, Technological,

Environmental and Legal environments of a country with reference to a particular object. The

PESTEL analysis of Tyson Foods is as follows:

Political

Tyson Foods after Wal-Mart is the biggest contributor to the political members of the

state in the Northern Arkansas. They have given donations through their political action

committees to the various members of congress to support them (Arkansas News, 2004). Its

representatives impact the public policy by direct interaction with the policy makers by

participation on industry committees and advisory boards (Tyson Foods, 2011). When taking

part in the policy development, Tyson’s priority issues (Tyson Foods, 2011) include the

following:

Balanced food and fuel policies: to support the development and use of renewable

fuels in order to reduce the dependence on oil.

Immigration Reform: it includes the comprehensive monitoring of immigration

reform to keep the track of legal and illegal immigrants.

Ensuring Food Safety: the company believes in commitment in working with the

federal government to ensure the safest possible food supply to the consumer in

the United States and around the world.

International Trade: it exports protein to more than 90 countries and their business

relies on a rules-based trading system that ensures fair market access for all

participants.

Tyson Foods has developed at TYPAC committee called the Tyson Political Action

Committee (TYPAC) which aims to develop and maintain relations with the elected officials

relating to their industry and company. These officials understand the business operations of

Tyson foods and help them provide more than hundred thousand jobs. Moreover, Tyson Foods

is the member of various industry groups and associations and works with them for representing

the industry and business community in discussions with the governmental agencies (Tyson

Foods, 2011).

Economic

According to the Tyson Foods US SEC Filings, its business is affected by the market

conditions of USA. They are using derivative financial instruments to reduce the effects of

exposure to market risks like changing commodity prices, interest rates and foreign exchange

rates etc. Their business is adversely affected by these economic changes and the effects of

governmental initiatives to manage economic conditions. If such conditions continued to prevail

in the long run then, any such changes could adversely affect the demand for products, or the

cost and availability of needed raw materials, cooking ingredients and packaging materials,

thereby negatively affecting the financial results (USSEC, 2010). Most of the business of Tyson

Foods is directed in the states of United States of America. Despite the economic conditions of

United States, the company is trying hard to position itself in the market to deal with the

economic downturn. The CEO of the company spoke to the press release that the company is

well versed to handle challenging economic conditions. He further claimed that “the company's

strong balance sheet, focus on execution and recent operational improvements have allowed the

company to compete effectively, even in the face of rising input costs” (Reuters, 2011; Meat

Trade News Daily, 2011).

Social

The food industry witnesses changing consumer trends, their demands and preferences.

These trends often chain and the failure to adapt and react to the changes can lead to reduced

demand and price reductions for the products which could have adverse effect on the financial

results of the companies. The company can suffer significant setbacks in terms of its sales and

the profits if the consumers plan changes or the market trends change significantly. Moreover, its

profits will fluctuate greatly if it lost one or more of its largest customers, including, for example,

Wal-Mart Stores, Inc., which accounted for around fifteen per cent of the sales in fiscal 2010

(USSEC, 2010).

In order to keep competitive in the markets, Tyson foods is engaged in various social

activities in the states it operates in. It strives to create value for the shareholders, customers, its

people and the communities it operates in. Its main philanthropic focus is on hunger relief, and

has become the leading private sector meat protein donor in the United States, providing over

nine million pounds of products to food banks and hunger relief organizations (Tyson Foods,

2011). It is also engaged in various other activities to promote the living standards of the people.

These activities include promoting education by Project A+, Strategic Community Involvement

Plans, Donations and Community Outreach, Volunteering for the disaster relief activities (Tyson

Foods, 2011).

Technological

Technology plays significant role in the food industry. If we look at the firms that are

highly profitable and market leaders, we’ll find out their competitive advantage is in

technological advancements. Tyson foods always have been a leader in food production

technology. In 2008, Tyson foods with the help of SecureNet, Inc., introduced a leading way in

security and access technology. By integrating SecureNet system it reached the security solutions

for both physical and logical assets, designed and installed a new multi-technology ID system.

This system allows the company to control the physical access to their processing sites. It

integrates technologies from Open Options software, Fargo card printer/encoders and HID cards

(SecureNet, 2008).

According to the US SEC Filings, the company is in search of different ways to

commercialize animal fats and other by-products from the operations, as well as the poultry

waste of their contract growers, to produce energy and other value-added products (USSEC,

2010). It has developed R&D department where the team of people are trying to enhance their

ability to develop new food solutions and bring them to market faster. This R&D department

includes Research Kitchen, USDA-Inspected Pilot Plant and Consumer Center. These three main

departments ensure the safe and healthy products from Tyson Foods in the markets (Tyson

Foods, 2011).

Environmental

According to Tyson Foods Environmental Policy, “Environmental stewardship is a core

value of Tyson Foods’ business philosophy because they believe protecting natural resources is

essential to achieving clean air, water, and land for our world.”(Tyson Foods, 2011).The

company is engaged in various environmental saving activities to limit the impact of its

operations on the environment, land, water and air in the areas of its operations. It has installed

various programs like continual environment efforts- Management Systems. These systems are

used to implement an environmental management system (EMS) at all of domestic processing

facilities.

Apart from EMS system, the company is working hard to enhance the natural farming

techniques of its collaborating farmers along with the initiatives to reduce the carbon dioxide,

ammonia reduction from its operations and the water saving techniques it is trying to implement

throughout its operations (Tyson Foods, 2011).

Legal

The operations of the company are subject to various rules, regulations, laws imposed by

the local and international governments based on the food production, safety, manufacturing,

packaging etc. of products. The company business units where the integrated processes related to

the business are conducted are also subject various laws relating to the protection of the

environment, including discharge of materials into the environment, health and safety issues of

employees (USSEC, 2010).

There are various incidences of law suits against the company in the history of Tyson

Foods. Among them are broiler farm related issues, environmental safety related legal actions,

employing undocumented immigrants, slaughtering methods, undisclosed use of antibiotics,

discriminating employees, and various others. These law suits and legal correspondences can

have adverse effects on the business practices of the company in long run. If the court decides to

go against the company then this will impair the Goodwill of the company and its brand image in

the markets (USSEC, 2010).

Porter’s Five Forces Analysis

Rivalry among established competitions

Tyson Foods specializes in the food distribution network that deals in business to

business ventures only. Many businesses use it as their primary distributor. It faces the threat of

rivalry from all the distributors nationwide. Some of its counterparts includes: Cargill,

Incorporated, Pilgrim's Pride Corporation and Smithfield Foods, Inc. All of these companies

offer a wide array of food products that can be delivered to a business. In order to be the most

successful company, it has to be able to differentiate its brand from the other companies and

develop unique selling point that offers the advantages of choosing their products over the

competition. The extent of rivalry among the existing competitors in the food industry is very

high.

Bargaining power of suppliers

The bargaining power of suppliers in the case of food industry is low. Tyson is a supplier

of meat products to the other businesses which gives it a position to maintain power over their

buyers. It has the power and position to impact the profitability of its clients by increasing or

decreasing the prices of its products. There are large numbers of food suppliers in the industry.

This quickly lower down the amount of power suppliers have over Tyson as it allows Tyson to

move between suppliers who provide the best products, service and prices. The suppliers do have

power in some areas, but Tyson is such a large company, with so many resources that limits the

power of suppliers.

The bargaining power of buyers

These food retailer companies are at the mercy of their customers. This industry

established its own market prices. As the economic crunch continues to less spending behavior,

the conscious and cautious buyers are hedging toward an economical solution that will please

their bottom line. Tyson works with over six thousand contract chicken growers (Forbes,

2010).The customer may ask for a lower price or may even ask for a special delivery of certain

products. Quiet often, if the customer requirements are not met at right time then there are

chances for the company to lose its valuable customers as the cost of switching is very low.

The threat of substitute products or services

The threat of substitute products is high in the case of food industry. Many large

companies are dependent on the food distributors like Tyson to distribute their products in the

markets. Many suppliers in this industry understand and recognize the crucial needs of their

supply chain partners to deliver goods and services to their customers. The wholesale food

distributors used to only be responsible for wholesaling and distributing activities. However, in

today’s time distributors are playing a new role by valuing their suppliers by creating opportunity

for profit gain, improving customer relationship, and improving productivity with the

distribution channels.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets.

This means that the level of threat of new entrants is relatively low in the industry. There are

varying reasons to the low rate of entry. Among them is the entry barriers imposed by the

industry. The new entrants will have to comply with the governmental regulations in order to

make their entry in the markets. Then the existing players are protected by the number of barriers

which makes it difficult for the new entrants to give hard time to them. Among them are: entry

restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit

them to compete against the existing market players.

Recommendations

This study provided brief overview on the external environment analysis of Tyson Foods.

The findings of the study suggested that Tyson Foods should focus on the following factors in

order to excel its business and social image in the world:

1. The company is advised to remove the frills that are driving the profitability of the

company. The opportunity costs must be minimized in order to obtain maximum

profit.

2. Tyson foods can expand its business operations in other regions of the country and

world. The developing markets possess great opportunities of growth for the

company.

3. Make sure all of its products qualify the requirements of various local and

international food requirements in order to acquire large number of customers

worldwide.

4. Improve the social and corporate linkages in order to create recall and recognition

among the existing and potential customers.

References

Arkansas News, (2004) Wal-Mart, Tyson Foods open campaign wallets, Retrieved on June 30, 2011 from http://arkansasnews.com/2004/10/30/wal-mart-tyson-foods-open-campaign-wallets/

Fortune, (2010) America’s largest Corporations, Fortune 500, Retrieved on June 28, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2010/states/TX.html

Meat Trade News Daily, (2011) USA Press Release: Tyson Foods Inc., Retrieved on June 30, 2011 from http://www.meattradenewsdaily.co.uk/news/170511/usa___press_release_source_tyson_foods_inc.aspx

One Source, (2011) Fortune 1000 companies list, Retrieved on June 29, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0

(2011) Tyson Foods, Retrieved on June 29, 2011 from http://www.onesource.com/free/Tyson-Foods-Inc/Company/Profile/28940

PAC Summary Data, (2008) Tyson Foods, Retrieved on June 30, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00169821

Reuters, (2011) Tyson Foods Positioned for Continuous Success, Retrieved on June 30, 2011 from http://www.reuters.com/article/2011/03/10/idUS186824+10-Mar-2011+GNW20110310

SecureNet, (2008) Team Member ID Management System Saves Tyson Foods Time and Money, Retrieved on June 30, 2011 from http://www.securenetinc.com/news/articles/SecureNet_TysonFoods.pdf

Tyson Foods, (2010) Form 10-k, Annual Report, Retrieved on June 29, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1

(2010) Acquisitions, Annual Report, Retrieved on June 29, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1

(2011) Charitable Giving, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/People/3_5.aspx

(2011) Environment, Retrieved on June 30, 2011 from http://www.tyson.com/Consumer/AboutTyson/TysonCares/Environment.aspx

(2011) Product Research and Development, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/Products/5_3.aspx

(2011) Public Policy and Political Contributions, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/Profits/6_7.aspx

USSEC, (2010) Tyson Foods, Form-10k, Retrieved on June 30, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1

(2010) Domestic and international government regulations could impose material costs, Retrieved on June 30, 2011 fromhttp://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1

(2010) Legal Proceedings, Retrieved on June 30, 2011 fromhttp://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1

(2010) Risk Factors, Annual Report, Retrieved on June 30, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1