Business Strategy Report: Cocoa Industry Analysis of Ghana & Nigeria

This report provides an analysis of the cocoa industry in Ghana and Nigeria, highlighting its economic significance and the impact of various factors such as political, economic, social, technological, environmental, and legal (PESTEL) aspects. It examines the involvement of Ghana's government versus the liberalized cocoa industry in Nigeria, the effects of currency stability, legal frameworks, social perceptions, technological advancements, and environmental conditions on cocoa production. The report also includes a five forces analysis of Mondelez International, assessing the threat of new entrants, bargaining power of suppliers and buyers, the threat of substitute products, and rivalry among existing competitors. Strategic recommendations are provided for Mondelez to enhance its market position and profitability, focusing on product innovation, supply chain efficiency, customer base expansion, service orientation, and collaboration with competitors. The report concludes that product innovation and value addition are crucial for long-term profitability in the cocoa market.

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Analysis and summary of cocoa in Ghana and Nigeria
Cocoa is the most important export crop in Ghana and accounts for 8.2 percent of the
nation’s GDP and 30% of the total earnings by exports (Asante-Poku & Angelucci , 2013). The
total production of cocoa doubled from 450,000 in 2000 to 900,000 tons in 2010 (Asante-Poku &
Angelucci , 2013). The main export destinations include countries in the European Union, the
UNITED states and Japan. Cocoa in Ghana is an important item as it contributes 25% of Ghana’s
foreign exchange and is subject to the policy interventions by the state including export tax,
licensing procedures and input subsidies (Asante-Poku & Angelucci , 2013).
On the other hand, Cocoa is the leading agricultural product in Nigeria and thus
important to the economy of Nigeria. Nigeria is currently ranked fourth among the leading
producers of cocoa in the world (Olaya, 2016). In 1970, Nigeria was the second largest producer
of cocoa in the world, however, following hefty investments in the oil sector, Nigeria’s share of
world production dropped 2010, cocoa accounted for 0.3% of the GDP from agricultural
products (Olaya, 2016).
PESTEL analysis
Political
As compared to Nigeria, Ghana’s government is solely involved from production to marketing.
For instance, in Ghana, the cocoa producer’s price is not liberalized and the COCOBOD fixes
the price (Gupta, 2013). However, in Nigeria the cocoa industry is liberalized following
recommendations by world Banks as the cocoa were ineffective in their operations.
Economic

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The stability of domestic currency to international currencies affects farmers of cocoa in
both countries to a large extent (Sridhar, et al., 2016). For instance, weakened domestic
currencies affect the price of coffee as it reduces the expected revenues hurting the farmers as the
cost of production increases. Strong domestic currencies mean better revenues for the farmers’
exports. Recently, due to inflation in both countries and weakened domestic currencies, the
farmers reap limited profits from the cash crop.
Legal factors
A country like Ghana has only allowed COCOBOD to sell cocoa on behalf of the farmers
or to other small industries for domestic production. In contrast, Nigeria has liberalized the trade
allowing farmers to sell their cocoa through other intermediaries who sell the cocoa to exporters.
In Ghana again, child labor was employed in the past, however, following stringent rules, it is
illegal to use child labor in cocoa farms.
Social factors
The perception of the people regarding cocoa as health drink has promoted local
consumption of cocoa in both Ghana and Nigeria. It has been reported that cocoa has substantial
levels of antioxidants of flavinols associated with cardiovascular health benefits.
Technological factors
Initially the entire process of cocoa production from planting to harvesting involved
traditional approaches. However, with farm mechanization farmers have their farms tilled and
prepared to have the cocoa seedlings transplanted in large scale farming. The process of value
addition to the cocoa product for export is now embraced in Ghana and Nigeria, this leads to
better prices being fetched in the global markets.

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Environmental factors
Cocoa farming requires high temperatures with heavy rainfall which is a characteristic of
the tropical rainforest where Ghana and Nigeria are located thus favoring the growth and
production of the crop.
Overview of Mondelez International
Mondelez International is among the top firms in the confectionary industry. Over the
years, the company has redefined its methods of doing business in the confectionary industry.
Mondelez International is also listed at New York Stock Exchange and its market cap is $69.6
billion (Halzack, 2018).
Five Force analysis
Threat of new entrants
New entrants in confectionaries leads to innovation that puts pressure on Mondelez
International through adopting a low-priced strategy for its products and providing value
propositions to its customers (Dobbs, 2014).. The company finalized the process of acquiring
80% of stakes in Kinh Do, ranked as one of the leading company in snacks business in Vietnam
(Mondelez International,Inc., 2017). The acquisition is aimed at strengthening the company’s
main snaking categories and will help the company expand in the Asia pacific region.
Recommendation
Mondelez International should focus on developing and innovating new products.
Developing new products not only attracts new customers but also give customers a motive to
buy products from Mondelez International.

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Bargaining power of suppliers
Majority of the companies in confectionary industry purchase their raw materials from
many suppliers. Suppliers holding dominant positions can cut the margins Mondelez
International can accrue from the market. The overall impact of higher bargaining power by the
suppliers is that it translates to low profitability of confectionaries and is the case with Mondelez
International’s low profitability in subsequent years.
Recommendation
Mondelez International should focus on establishing supply chains that are efficient by
having multiple suppliers.
Bargaining power of buyers
Buyers are often associated with many demands. Buyers always want to but the best
products available by paying the lowest price possible (Indiatsy, et al., 2014). The small base of
powerful customers of Mondelez International means more bargaining power by the customers
and their ability to demand increasing discounts and offers (Mondelez International,Inc., 2017).
The company introduced new products of Nespresso compatible espresso tablets with the Jacobs
to increase its products in Germany, Austria and France.
Recommendation
The company should focus on building a large customer base. This will enable the
company to limit the bargaining power of the customers and enable the company streamline the
process in sales and production.
Threats of substitute products

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The introduction of a new product or service that satisfies the similar customer needs in
various ways, then profitability of the rival firm suffers. The existence of a substitute product
possesses great threat as it presents value proposition that is different from present offers in the
market.
Recommendation
Mondelez International should focus on being service oriented rather than being product
oriented. The firm should understand customer needs rather than focus on what the customers are
buying.
Rivalry among the existing competitors
The existence of an intense rivalry among players in the industry drives down prices
which affects the profitability of the industry. Mondelez International competes in a very intense
confectionary market in terms of competition. Mondelez and D.E Master Blenders struck the
final deal of combining their respective coffee businesses. The transactions entailed the
company’s coffee (Mondelez International,Inc., 2017) portfolio in France, a move that will see
the company create the Jacobs Douge Egberts which will now be the owner of the leading coffee
brands in the world such as Tassimo, Maccona and Jacobs among others.
Recommendation
Mondelez International should collaborate with competitors so that it can enjoy serving a
larger market as opposed to competing in a small market.
Conclusion

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The cocoa market has more to achieve from both the producers’ and suppliers’ side.
Product innovation and value addition are important if profitability is to be achieved in the long-
run. Manufacturers such as Mondelez Internal, Inc have to keep developing new confectionary
products that meet the demands of the customers while at the same time be efficient enough to
keep the cost of production low.
References
Adamkasi, 2015. PESTLE analysis of Ghana. [Online]
Available at: http://freepestelanalysis.com/pestel-analysis-of-ghana/
[Accessed 30 March 2018].
Asante-Poku, . A. & Angelucci , F., 2013. ANALYSIS OF INCENTIVES AND DISINCENTIVES.
[Online]
Available at: http://www.fao.org/3/a-at551e.pdf
[Accessed 30 March 2018].
Dobbs, M. E., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitive Review, 24(1), pp. 32-45.

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Gupta, A., 2013. Environment & PEST Analysis: An Approach to External Business
Environment. International Journal of Modern Social Sciences, 2(1), pp. 34-43.
Halzack, S., 2018. Time for Mondelez to Eat or Be Eaten. [Online]
Available at: https://www.bloomberg.com/gadfly/articles/2018-02-01/mondelez-international-
earnings-eat-or-be-eaten
[Accessed 30 March 2018].
Indiatsy, C. M., S. M. M. & Mandere, E. N., 2014. The Application of Porter’s Five Forces
Model on Organization. European Journal of Business and Management, 6(16), pp. 2-12.
Mondelez International,Inc., 2017. Company profile. [Online]
Available at: www.marketline.com
[Accessed 30 March 2018].
Olaya, T. A., 2016. Examining the Political-economy of Cocoa Exports in Nigeria. The
International Journal of Applied Economics and Finance, 1(1), pp. 1-13.
Sridhar, R., Sachithanandam, V., Mageswaran, T. & Purvaja, R., 2016. A Political, Economic,
Social, Technological, Legal and Environmental (PESTLE) approach for assessment of coastal
zone management practice in India. Internatioanal Review of Public Administration, 21(3), pp.
216-232.