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... by a local ice cream monopoly that had ties to the Mafia. Upon hearing of Ben& Jerry's arrival, the local monopoly pressured the dairy not to supply the outsider with any cream, forcing them to find a new source of dairy nearly a days drive away. In addition, they arranged for frequent sanitation inspection visits in an afford to slow Ben& jerry's operation down and keep them out of ice cream business in Petrozadovks.
Russians love for ice cream is legendary, even during their long, cold winters. Maybe thats what makes them so strong. Or as Winston Churchill once put in: You cannot defeat a nation ice cream at minus- 40 Celsius. Russia also has always been known for its tasty ice cream.
But local Russian ice cream companies has e few variety such as vanilla (98 percent of ice cream production in Russia was vanilla). These companies generally have small factories whit 30 - 100 employees. But Foreign companies sell more than 600 different kind ice creams. Local producers use all natural ingredients, but foreign companies sometimes use artificial ingredients in their products. STRATEGY AND VALUE CHAIN The Value Chain is composed of two main group activities, the support activities and the primary activities.
Within the support activities we find the firms infrastructure, human resource management, technological development, and procurement. In other words, the support activities are the within company activities. On the other hand, the primary activities group is composed of the supply chain, marketing and sales, and services. The supply chain sub-group contains the inbound logistics, the operations and the outbound logistics.
As is expected, the primary activities are the outside / connection company activities. According to this concept, at the end of the Value Chain we find little room for margin, which at all possible time is trying to be increased. Inbound Logistic: At the first point of the supply chain within the primary activities is the inbound logistic. The system to link suppliers products with the firms production process was not the most efficient, but nevertheless a good one. Because of the hostile environment caused by the local monopoly who pressured the dairy not to supply Ben & Jerry with any cream in Petrozavodsk, the company had to find another suitable supplier for their ingredients almost 24 hours away by car within the same region.
Nevertheless, the new suppliers milk had to be reformed to meet Ben & Jerry's requirements, and high grade eggs and sugar had to be located. However, at times managers were faced with the fact that some ingredients could not be found at all in that region, and needed to be replaced by another local ingredient. For example, the kuala was replaced by the vodka, which altered the flavor of the product. In addition, not only scarce skilled inspectors needed to be recruited, but also Ben & Jerry had to heighten their sanitation system since Russias dairy industries are not as strict as the United States. Operations: The second point of this chain is the operations of the corporation. Ben & Jerry had to train all of the managers and employees in work habits and in the philosophy of the capitalist nation.
As a result, managers from the United States had to be brought in to train these new employees not only about the market system, but also about the importance of producing a high quality ice cream. In addition, there was a lack of refrigerators in Russian stores which prompted Ben & Jerry to import their own refrigerators. They would either sale them, rent them or even give them away to the owners of these stores so as to avoid the ice cream to melt and refreeze again, reducing the quality of their products. In addition with all the technological difficulties encountered, there were a lot of communication problems between the partners; One of which was when the Russian partners considered it was time for expansion and the American decline because they considered more important that the level of demand reach at least 75 % of their capacity.
Outbound Logistic: The third point of the supply chain is the outbound logistics. At this first level of distribution of their product from one place to the other within the same region, Ben & Jerry encountered a problem with the lack of refrigerated trucks in Russia, as a result they had to import such assets. Other unexpected and more serious distribution problem encountered was at the time when Ben & Jerry's wanted to expand into other cities in Russia. At that point, they found out that distributing product around the different cities of Russia, via the railroads system for example, was very expensive. This would have prompted them to increase the price of their product unreasonably. However, distribution networks were established through the close friendly relationship between the Russian partner and the distributors company, which favored business relationship.
Marketing and Sales: The other point within the primary activities is marketing and sales. Iceverks wanted to produce a premium ice cream that Russians could afford. As a result, they used local suppliers to reduce cost significantly. Although, more then 98 % of the ice cream consumed in Russia is vanilla, Ben & Jerry's relied on their varieties and novelty ice cream as their advantage in the competitive market. However, as a clear result of a lack of marketing, customers thought that the product was spoiled whenever they saw chunks of ingredients in the Ben & Jerry's ice cream.
In addition to all of these conflicts, as a result of the political and economic instabilities in Russia, and the in convertibility of the ruble, the company could not repatriate their profits. Although most of their product were sold in Rubles and their cost covered by these products sold, some distributors paid Ben & Jerry's in dollars. However, by 1993 Ben & Jerry's was no longer allowed to sale any of its product in US$ as long as they were produced in Russia. As a result of this new limited space for marketing and the increasing uncertainty on the value of the ruble, Ben & Jerry's distributors quit, resulting in their products inability to reach some cities like Moscow.
Services: The last point of the primary activities in the Value Chain is the services. In order to provide a good and frozen ice cream to their costumers, Ben & Jerry's had to make sure that some of their distributors were well equipped. As a result, they went to the point of providing them with a refrigerator that would keep their product in a good condition until consumption. Additionally, Ben & Jerry's employees were trained to keep refrigerators clean and store in good sanitary condition. The company went as far as to teach and require their employee to greet their customers as part of their work ethics. EVALUATION AND CONCLUSION When Ben Cohen took a trip to Russia in 1988, he was actually a very intuit businessman.
He decided to open up business right away there and generally speaking it seemed a right decision, considering the abundant natural resources there, cheap land, cheap and highly educated workforce, and a huge market. But the big risk followed the big opportunity closely. He was an idealist in some degree, not a real businessman. Neither motivated by the industry structure or attractiveness of the external environment out there, nor by the resource-based characteristics inside the company, the only motivation was excited by the ice cream diplomacy and social responsibility. It is very nice for a businessman to have such a big idea, but this is business, it is in some degree a scientific thing which thousands and thousands professors and students are researching it everyday.
You have to be very serious about it, otherwise you couldnt achieve profit from it and you will lose a lot of money there, a lot of people will lose jobs, maybe some serious social problems follow it, even turmoil because of it, let alone to fulfill any big diplomatic or social goals. If Ben& Jerry company have done enough homework to investigate and assess the environment in 1988 and 1999 in Russia, they would not have encountered with such meltdown in Russia. First, the political instability was obvious even in 1988 and 1989 when they decided to do business there, different political groups started to pursue their target in the form of so called new thoughts or new system in Kremlin, the news about someone was planning a coup in 1988 was street gossip everywhere; Second, the economy and financial risk was very high, due to the inflation, the huge drop in the value of ruble, the payment in the form of ruble, the inability to repatriate profits because of in convertibility of the ruble; Third, the specific enter strategy was joint venture, generally it was a right decision because of the huge political risk, but the wrong thing they did about that was the 50: 50 control right over that joint venture, that means that they didnt get the absolute control right over the joint venture, it would be some trouble in the near future for them to see over the joint ventures development direction; Fourth, the big culture difference between the two countries reflected in the development direction over the joint venture, the inflexibility both sides were using to deal with the culture difference was easy to result in business failure. It seems that Culture difference is not as important as a sound strategy for some businessman, it is sometimes the exactly root for business failure. When dealing with culture difference, patient and flexibility are needed in some countries. It takes some time or some little changes somewhere to get the aim.
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Research essay sample on Issues With Expanding Ben Amp Jerry Into Russia
