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About the company: Company: Natural Flavors Corporation (N F C) Office based in: India Since: 1950 NFC has a strong legacy in the food ingredients business. The parent company, in existence since the 1900s, was involved in trading of basic agricultural produce and N F C was formed as part of initiatives to move into the value added products space. Though a family owned company the day to day operations are handled by professionals. Through these years of existence the company has developed expertise and the network to work with global raw material producers. Today the company is at crossroads ± the decisions made today will decide whether the dreams of the company to be a truly international ingredient solutions provider will be realized or be left behind as a commodity supplier. N F C¶s Products : Natural Flavor Ingredients N F C¶s Customers: Flavor manufacturers and large food companies and companies serving these companies in B2B space based in US and EU. Supply chain. N F C is a multi level value chain partner. The company has the expertise and network to work closely with the farming community. The network strength is unparalled in the industry with around 15,000 farmer memberships for agricultural produce in India. The success of the farmer network is attributed to the policy upheld by the company of value creation for all stake holders. The company has extensive global sourcing capability. Since the business is of commodity nature, supply chain efficiency is the key determinant of success.
End Food and Beverage companies Sauces, soups and condiments manufacturers Gross contribution at 45% +
Dilutors/ Blenders/ smaller packagers - US & EU
Resellers- US & EU
Gross contribution at 35% +
Value added product manufacturer / Exporters / domestic sellers
Gross contribution at 25% +
Processing companies. Farmers / farming societies / collection agencies
Marketing. The marketing team based out of India is structured continent wise with a separate team to service global corporate accounts. N F C¶s current customer portfolio is predominantly large Flavor manufacturers and Food Ingredient Suppliers. The business though steady and high in volumes is mediocre in terms of margins, due to the negotiating power of these large business houses. The business risk is high due to the volatility of raw material costs vis a vis the fixed annual contract rates that these giants operate on. The
phenomenal business opportunity provided by the SME's is untapped by the company. SME's typically source small volumes of individual products, with a higher margin to the vendor. The buying pattern also shows that they mostly execute spot purchases and prefer to transact with a trusted local supplier who can provide them with a basket of products. The individual product volumes are small and therefore dealing with a reseller who offers their basket of products makes better sense for them because of better prices, adjustment of local costs, lower inventory carrying cost, avoiding hassles in importing like FDA and customs clearances. SME business is less risky in nature and generates healthier profits for vendor with better payment terms and facilitate selling at current market prices. The local presence provides direct access to end customers, giving an opportunity to service additional requirements. Since the engagement levels would be high, the emerging trends in the business could be captured on a real time basis, enabling N F C to be proactive in servicing the requirements. Competition N F C faces two tier competitions. 1. Competition from Indian manufacturers. The competition from Indian manufacturers is mostly on price. Product differentiation is currently nonexistent and has acquired a commodity nature.
2. Competition in the customer markets from traders and aggregators (Locally present companies like Kalsec, Citrus and allied, Naturex etc). Traders present in customer markets (US and EU) procure products from Indian manufacturers and supply to flavor/food companies. Since these companies are traders they are better placed to take advantage of competitive market position of manufacturers across the globe. The product basket of traders is wide and provides them a competitive advantage. Companies in India (Competition 1) are also making their presence felt in the customer markets by opening up local offices. Manufacturing. The manufacturing facilities of the company are based in raw material growing areas. This is common in the industry as the quantity of raw material that is used is huge. The manufacturing technology is standard across the industry with specific strength on certain products by each company. N F C being the pioneer in the industry has the first active ingredient manufacturing plant in India. The company follows a highly conservative approach to capital investments
Finance. N F C is a heavily leveraged company which puts pressure into working capital and profits. The finance department has dedicated teams to handle the banking, treasury and forex. The finance department has a core team to oversee the forex activity as the business involves handling multiple foreign currencies for procuring raw material as well as sales to customers across the globe. Human Capital. The talent hiring and management team is a dynamic function within the company. The company believes in employee empowerment as a method to keep the employee morale high. The company enjoys a competitive edge over its Indian competitors on the quality of its employees and their motivation levels.
Case study : N F C is faced with the issue of a stagnant market and Oligopolistic market situation. The competition is cut throat. The decisions of one firm influence, and are influenced by, the decisions of other firms. The raw materials being of agricultural nature is highly volatile. The raw material contributes to almost 80 % of the product costs. The business by nature is of long term customer contracts. The ability to pass on the raw material price increase is limited because of the peculiar business nature. The seasonal availability of raw materials requires the company to purchase raw materials during the harvesting period. This puts immense pressure on the working capital requirement of the business and has started affecting the equity with suppliers. All these factors have significantly reduced the profitability of the business. The top management team of N F C is meeting to decide on the future strategic road map. All CXOs agree on the fact that the way the business is conducted needs to be changed while capitalizing on its long term customer relationship. Devise future strategic direction for NFC.