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 - – customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, increasing commodity prices, supply chains are disrupted by pandemic , talent flight as more people leaving formal jobs, increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion,
cloud computing is disrupting traditional business models, technology disruption, 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 -
Diverse revenue streams
– Sanlu Melamine is present in almost all the verticals within the industry. This has provided firm in Sanlu's Melamine-Tainted Milk Crisis in China case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Cross disciplinary teams
– Horizontal connected teams at the Sanlu Melamine are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Superior customer experience
– The customer experience strategy of Sanlu Melamine in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
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.
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.
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.
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Sanlu Melamine digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Sanlu Melamine has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Successful track record of launching new products
– Sanlu Melamine has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Sanlu Melamine has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
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.
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.
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 -
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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Sanlu's Melamine-Tainted Milk Crisis in China, it seems that the employees of Sanlu Melamine don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
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.
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.
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.
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.
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.
Workers concerns about automation
– As automation is fast increasing in the segment, Sanlu Melamine needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Slow decision making process
– As mentioned earlier in the report, Sanlu Melamine has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Sanlu Melamine even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High cash cycle compare to competitors
Sanlu Melamine has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Aligning sales with marketing
– It come across in the case study Sanlu's Melamine-Tainted Milk Crisis in China that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Sanlu's Melamine-Tainted Milk Crisis in China can leverage the sales team experience to cultivate customer relationships as Sanlu Melamine is planning to shift buying processes online.
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 -
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Sanlu Melamine to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Sanlu Melamine to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at Sanlu Melamine can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Global Business segment.
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.
Manufacturing automation
– Sanlu Melamine can use the latest technology developments to improve its manufacturing and designing process in Global Business segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Sanlu Melamine can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Sanlu's Melamine-Tainted Milk Crisis in China, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
Loyalty marketing
– Sanlu Melamine has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Sanlu Melamine can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Sanlu Melamine can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
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 -
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Sanlu Melamine in the Global Business industry. The Global Business industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Sanlu Melamine in the Global Business sector and impact the bottomline of the organization.
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.
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.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
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.
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.
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.
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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Sanlu's Melamine-Tainted Milk Crisis in China, Sanlu Melamine may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
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.
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.