Sanlu's Melamine-Tainted Milk Crisis in China SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Global Business
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Sanlu's Melamine-Tainted Milk Crisis in China
On 12 September 2008, Sanlu Group, the biggest producer of milk powder in China, rocked the country when it admitted that its infant formula had been contaminated with the toxic chemical melamine. China's national inspection agency extended its investigation to other dairy manufacturers across the nation. Shockingly, products of 21 other dairies, including some famous Chinese brands, also tested positive for melamine. Due to consumption of melamine-laced milk products, more than 56,000 infants and young children had become sick and four babies had died from kidney failure by the end of September. The melamine scare also resulted in many countries recalling and banning goods using milk products from China. When Sanlu became the key culprit in the milk crisis after its infant formula was revealed to contain as much as four times more melamine than other tainted brands, the company apologized to the public. Sanlu also explained that its unscrupulous raw-milk dealers had illegally added melamine to milk. However, it failed to explain its delay in alerting the public when it first received customer complaints in late 2007. Instead, Sanlu had tried to cover up the news until being prompted by its New Zealand partner, Fonterra, which later alerted the New Zealand government. As a result of the milk crisis, the local government of Shijiazhuang, where Sanlu was headquartered, was accused of holding back the news from the central government. Fonterra wrote off all its investment in Sanlu, and Sanlu finally declared bankruptcy on 24 December 2008. The Sanlu incident has spotlighted the inadequacy of China's entire dairy supply chain and has forced the government and the industry to make a collective effort to restore consumer confidence in Chinese dairy products.
Authors :: Jiangyong Lu, Zhigang Tao, Claudia H. L. Woo
Swot Analysis of "Sanlu's Melamine-Tainted Milk Crisis in China" written by Jiangyong Lu, Zhigang Tao, Claudia H. L. Woo includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Sanlu Melamine facing as an external strategic factors. Some of the topics covered in Sanlu's Melamine-Tainted Milk Crisis in China case study are - Strategic Management Strategies, Ethics, Government, Marketing, Social enterprise, Supply chain and Global Business.
Some of the macro environment factors that can be used to understand the Sanlu's Melamine-Tainted Milk Crisis in China casestudy better are - – supply chains are disrupted by pandemic , wage bills are increasing, increasing commodity prices, geopolitical disruptions, technology disruption, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models,
increasing transportation and logistics costs, there is backlash against globalization, etc
Introduction to SWOT Analysis of Sanlu's Melamine-Tainted Milk Crisis in China
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Sanlu's Melamine-Tainted Milk Crisis in China case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Sanlu Melamine, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Sanlu Melamine operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Sanlu's Melamine-Tainted Milk Crisis in China can be done for the following purposes –
1. Strategic planning using facts provided in Sanlu's Melamine-Tainted Milk Crisis in China case study
2. Improving business portfolio management of Sanlu Melamine
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Sanlu Melamine
Strengths Sanlu's Melamine-Tainted Milk Crisis in China | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Sanlu Melamine in Sanlu's Melamine-Tainted Milk Crisis in China Harvard Business Review case study are -
Low bargaining power of suppliers
– Suppliers of Sanlu Melamine in the sector have low bargaining power. Sanlu's Melamine-Tainted Milk Crisis in China has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Sanlu Melamine to manage not only supply disruptions but also source products at highly competitive prices.
Learning organization
- Sanlu Melamine is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Sanlu Melamine is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Sanlu's Melamine-Tainted Milk Crisis in China Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Innovation driven organization
– Sanlu Melamine is one of the most innovative firm in sector. Manager in Sanlu's Melamine-Tainted Milk Crisis in China Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Training and development
– Sanlu Melamine has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Sanlu's Melamine-Tainted Milk Crisis in China Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Operational resilience
– The operational resilience strategy in the Sanlu's Melamine-Tainted Milk Crisis in China Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Ability to lead change in Global Business field
– Sanlu Melamine is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Sanlu Melamine in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Analytics focus
– Sanlu Melamine is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Jiangyong Lu, Zhigang Tao, Claudia H. L. Woo can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Effective Research and Development (R&D)
– Sanlu Melamine has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Sanlu's Melamine-Tainted Milk Crisis in China - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Ability to recruit top talent
– Sanlu Melamine is one of the leading recruiters in the industry. Managers in the Sanlu's Melamine-Tainted Milk Crisis in China are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High switching costs
– The high switching costs that Sanlu Melamine has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Global Business industry
– Sanlu's Melamine-Tainted Milk Crisis in China firm has clearly differentiated products in the market place. This has enabled Sanlu Melamine to fetch slight price premium compare to the competitors in the Global Business industry. The sustainable margins have also helped Sanlu Melamine to invest into research and development (R&D) and innovation.
Highly skilled collaborators
– Sanlu Melamine has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Sanlu's Melamine-Tainted Milk Crisis in China HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Weaknesses Sanlu's Melamine-Tainted Milk Crisis in China | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Sanlu's Melamine-Tainted Milk Crisis in China are -
No frontier risks strategy
– After analyzing the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China, it seems that company is thinking about the frontier risks that can impact Global Business strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Interest costs
– Compare to the competition, Sanlu Melamine has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Need for greater diversity
– Sanlu Melamine has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High operating costs
– Compare to the competitors, firm in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Sanlu Melamine 's lucrative customers.
Products dominated business model
– Even though Sanlu Melamine has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Sanlu's Melamine-Tainted Milk Crisis in China should strive to include more intangible value offerings along with its core products and services.
Capital Spending Reduction
– Even during the low interest decade, Sanlu Melamine has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Skills based hiring
– The stress on hiring functional specialists at Sanlu Melamine has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China, is just above the industry average. Sanlu Melamine needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Sanlu's Melamine-Tainted Milk Crisis in China, in the dynamic environment Sanlu Melamine has struggled to respond to the nimble upstart competition. Sanlu Melamine has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Sanlu Melamine is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Sanlu's Melamine-Tainted Milk Crisis in China can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Low market penetration in new markets
– Outside its home market of Sanlu Melamine, firm in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Opportunities Sanlu's Melamine-Tainted Milk Crisis in China | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Sanlu's Melamine-Tainted Milk Crisis in China are -
Better consumer reach
– The expansion of the 5G network will help Sanlu Melamine to increase its market reach. Sanlu Melamine will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Sanlu Melamine can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Sanlu Melamine is facing challenges because of the dominance of functional experts in the organization. Sanlu's Melamine-Tainted Milk Crisis in China case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Using analytics as competitive advantage
– Sanlu Melamine has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Sanlu's Melamine-Tainted Milk Crisis in China - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Sanlu Melamine to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Sanlu Melamine can use these opportunities to build new business models that can help the communities that Sanlu Melamine operates in. Secondly it can use opportunities from government spending in Global Business sector.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Sanlu Melamine in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Learning at scale
– Online learning technologies has now opened space for Sanlu Melamine to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Sanlu Melamine to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Buying journey improvements
– Sanlu Melamine can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Sanlu's Melamine-Tainted Milk Crisis in China suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Creating value in data economy
– The success of analytics program of Sanlu Melamine has opened avenues for new revenue streams for the organization in the industry. This can help Sanlu Melamine to build a more holistic ecosystem as suggested in the Sanlu's Melamine-Tainted Milk Crisis in China case study. Sanlu Melamine can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Sanlu Melamine can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Sanlu Melamine can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Sanlu Melamine can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Sanlu Melamine can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Threats Sanlu's Melamine-Tainted Milk Crisis in China External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China are -
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Sanlu Melamine.
High dependence on third party suppliers
– Sanlu Melamine high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Sanlu Melamine business can come under increasing regulations regarding data privacy, data security, etc.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Sanlu Melamine with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Consumer confidence and its impact on Sanlu Melamine demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Easy access to finance
– Easy access to finance in Global Business field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Sanlu Melamine can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Sanlu Melamine is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology acceleration in Forth Industrial Revolution
– Sanlu Melamine has witnessed rapid integration of technology during Covid-19 in the Global Business industry. As one of the leading players in the industry, Sanlu Melamine needs to keep up with the evolution of technology in the Global Business sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Stagnating economy with rate increase
– Sanlu Melamine can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Sanlu Melamine needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Global Business industry regulations.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Sanlu Melamine will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Increasing wage structure of Sanlu Melamine
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Sanlu Melamine.
Weighted SWOT Analysis of Sanlu's Melamine-Tainted Milk Crisis in China Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Sanlu's Melamine-Tainted Milk Crisis in China is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Sanlu's Melamine-Tainted Milk Crisis in China is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Sanlu's Melamine-Tainted Milk Crisis in China is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Sanlu Melamine needs to make to build a sustainable competitive advantage.
