Question

Kellogg (the cereal-making company) is considering adding new businesses because its cereal business in the US is not growing.  It has enough cash on its balance sheet, and its leverage is not too high (i.e. it has some borrowing capacity.  The management expects that without doing anything, the cereal business will shrink dramatically in the next 2-3 years.  The CEO has been considering adding a new business in “nutraceuticals” industry – which combines nutrition with pharmaceuticals.  However, while the industry is attractive, entry barriers to this industry are very high – it requires specialized knowledge, knowledge of FDA (the US regulatory body for pharmaceuticals) procedures, specialized plants and equipment, as well as specialized talent.  The best option for Kellogg to implement this idea would be to (explain both why you picked your choice, and also explain, in orderwhy did you did not pick others – you need to explain each one separately, do notdismiss others by a generic “I did not pick others because….”):

1. Internally develop a business in the target industry (nutraceuticals)
2. Further global expansion in Africa with new cereals
3. Acquire a company in the target industry (nutraceuticals)
4. Check what General Mills (a Kellogg competitor) is doing
5. Contact some companies in nutraceuticals industry for a possible partnership

Answer 1

The best option for Kellogg to implement this idea would be to Contact some companies in the nutraceuticals industry for a possible partnership.

Reasons for selection:-

1. The main reasons for the selection of this option are as below:-
2. The partnership is a good option to expand the business in new territories as it will lower and share the risk with the partner.
3. The expertise of the partner will help the company to understand the new market
4. It is quite helpful in sharing the expenses and procedures required for the expansion.
5. The partnership also facilitates access to the intellectual properties and other assets of the partner.
6. The strong partner adds the brand value to the other company.
7. The information about the target market is easily available as the inputs of the partner company can e utilized for this purpose.

Reason for the rejection of other options:-

Internally develop a business in the target industry (nutraceuticals):- This will require a lot of fund and expertise in the target market. There is also a risk of failure as it is going to be a new industry segment

Further global expansion in Africa with new cereals:- Launching a new product in the new market is full of risk. Moreover, the company has to spend a lo in the market research in order to determine the taste and preference of the target market.

Acquire a company in the target industry (nutraceuticals):- This again has a lot of fund requirements. It is also affected by the various conditions and problems associated with the acquisition of the new company. It needs some time to get sync between the acquiring and acquired company to work as expected.

Check what General Mills (a Kellogg competitor) is doing:- This is a good idea but it does not mean that the strategies followed by the rival also performs well for you.