JBS Swift & Co. Competitive Analysis and Possible Alternatives
The decision by JBS S.A. to purchase the 3rd largest beef and pork packaging firm in the U.S., Swift & Company, proved to the world that the Brazilian based company was ready to step up into the world markets. Previously, JBS survived in what can be best described as a “Blue Ocean” environment, allowing them to become the largest meat producer in Brazil. With 23 plants based in South America, the company showed that it was well ahead of the competition early on when making the choice to sell shares of ownership of the corporation. Stepping out in the U.S. market would prove to be a painstaking process due to the greater amount of competition in the U.S. market. Swift & Company was already established in the U.S., but was facing major financial difficulties. This led Hicks Muse, owner of Swift & Co., to put the company up for sell in early 2007, which allowed JBS the opportunity to acquire the U.S. firm and establish themselves in not only the U.S. markets, but in the world as well.
In the course of a year, Brazilian meatpacking company, JBS, began its plan for global control by purchasing three American beef processing companies, in addition to the purchase of an Australian beef company and 50% stake in the Italian meat company, Inalca. These multiple acquisitions clearly deviate from the company’s initial philosophy, which is as follows: “we focus only on what we can control, and forget the rest.” (Page 12, paragraph 1) While their focus may seem logical to many, analysts did not think their large amount of newly acquired debt was good for the company’s future. Public perceptions of JBS’s acquisitions were also affected due to more perceived risk of the industry. Simply by looking at JBS’s balance sheet and income statement, investors could not see the true nature of the company’s potential. With criticism from analysts who felt that JBS had “bitten off more than it could chew,” along with Moody’s downgrade of JBS stock, prices dropped 9.4%, to the lowest level six months. With that being said, we feel that JBS should take one of several different routes:
1. Restructuring the organization/management at a different time and manner.
2. Maintain a stable position in the existing market. Instead of going global right away, capture a bigger percentage of their current meat market, making sure they were completely established.
3. More efficient supply chain management and communication between ranchers and the meat packing industry.
(Add in conclusion of Alternatives, and how each would affect JBS’s central problem.)
Entering Into the International Market:
Due to rapid expansion, as a result of acquiring a number of companies in a short period of time, JBS found themselves with an overwhelming amount of debt. Following our first alternative of restructuring the organization at a different time and manner, we believe JBS should have waited to build the capital required to cover the debt incurred from previous purchases, before expanding so rapidly. By building their capital first, JBS would have had the opportunity to acquire competing firms, but not acquire so much debt in such a short period of time.
JBS Swift & Co. developed a strategy of acquiring competing firms within the beef and pork industry in order to gain more market share. By gaining more market share this allowed them the opportunity to gain economies of scale. Products produced by JBS Swift & Co. were identical to those produced in Brazil by JBS S.A., this allowed them to rely on knowledge and experience they already developed, and therefore they had no technological learning curve to overcome. JBS did not have any internal switching cost from leaving suppliers for another, but they faced other issues such as the foreign exchange of Brazilian currency to the U.S. markets and global exports. Another issue facing JBS was the large amounts of capital needed to acquire Swift & Co. due to it having a pre-established debt of $1.2 Billion. After acquisition of Swift & Co., JBS gained higher market share in the U.S. markets. They also gained the advantage of Swift & Co.’s distribution networks that it had established throughout its history. JBS Swift gained a large amount of market share through acquisitions of Inalca, Smithfield, and National Beef which ultimately led to cattle ranchers protesting their acquisitions because of the threat of JBS Swift & Co’s buying power. Such protest greatly affected the review of JBS’s acquisitions by the Department of Justice.
In their current position, along with the substantial amount of debt, JBS failed to recognize the cultural barriers into which they were entering. While committing to keeping the culture of simplicity, dynamism and efficiency, Wesley overestimated the ease of taking over the American market. He believed that “operating internationally and offering products tailored to cultural norms, was a key to providing value.” However, this philosophy does not align with the main focus of the company’s “simple” values.
Supplier Power
JBS Swift has become one of the biggest meat powerhouses in recent years. As previously stated, there were many people who had problems with the acquisitions and mergers that were taking place, especially the acquisition of National Beef and Smithfield Beef. The Organization of Competitive Markets (OCM) had much to say about the risk that surrounded the everyday cattle producers who are fighting to compete with JBS and their huge market share. According to a press release from OCM, “More cattle producers will be forced out of business even as the U.S. population grows and increases demand for beef”. A major fear of cattle ranchers was that JBS, Tyson, and Cargill controlled eighty percent of the decisions for slaughter-ready cattle.
JBS Swift already has a Small Business Liaison Officer that works with suppliers who are small, disadvantaged, women-owned, HUB zone, or Veteran Owned Businesses. This was a good way to gain respect from suppliers and to become an established force within the industry. Although, this was a good thing to become more diverse maybe JBS should have chosen to do business with suppliers who are local to them (such as around the Greely, CO area). JBS also needed to make sure that they could market the supplier’s products more efficiently. Another concern was to not shift their loyal consumers to another brand or another meat product. This would have put the supplier on Swift’s good side and would not have forced them to exercise their power and work against them.
Buyer Power:
With less competition with competing firms for suppliers to sell their good to, buyer power will be high for JBS Swift if they continue to acquire or merge with more companies. This would greatly affect consumers of beef and pork products decision when choosing products because of the less product diversity available. This was a major issue that the Organization for Competitive Markets had with JBS and their acquisitions of National Beef and Smithfield Beef. Seventy two other organizations also opposed the acquisitions. The Organization of Competitive Markets was against the acquisitions because they did not believe it was right for three companies to be solely responsible for determining U.S. cattle prices for the whole market. The three firms that the OCM was concerned about were the three major beef and pork packers of the U.S. which included JBS Swift, Tyson and Cargill Meat Solutions. Consumer buying power will be high if JBS Swift does not establish itself more by focusing on the customer and not on being a meat powerhouse. Customers should become a top priority, and JBS Swift should be careful not to drive away other customers and play competitors of JBS Swift against them. (?) It would be a major benefit for JBS to become a more established firm and not to just be a powerhouse in terms of mergers and acquisitions. Establishing itself in the market by having a good relationship with buyers and as well as suppliers would be a good move for the company.

Rivalry
Within the U.S. market, the newly formed JBS Swift & Co. faced a great deal of competition in both the beef and pork industries. Tyson, Cargill, and National Beef were well established meat processors that controlled a large portion of the market share. Within the same year of acquiring Swift & Company, JBS also planned to acquire 50% of Inalca, an Italian meat packing company. The following spring they announced purchase of National Beef, which stood as the 4th largest beef packaging firm, as well as Smithfield Beef Group, the 5th largest beef packer in the U.S. JBS also purchased Tasman, an Australian based beef packaging firm, thus establishing themselves as the largest beef packers globally. This two year expansion of firm growth proved the small Brazilian beef suppliers were focused on gaining market share throughout the world.
Such acquisitions by JBS in such a short time required a great deal of financial resources and eventually led to many questioning the stability of the company due to large debt acquisitions. Many financial institutions, especially Moody’s Investors Service, showed great concern for this overextension. Another major factor facing JBS was the approval by the Department of Justice on its recent acquisitions. Financial concerns were not the only thing on Wesley Batista’s mind, as the new CEO of JBS Swift & Co. With the recent consolidation of U.S. beef packers, many cattle ranchers showed concern for price and profit reductions due to the decrease in possible packers bidding contracts. Organizations such as the American Farm Bureau Federation and National Cattlemen’s Beef Association showed concerns that would greatly affect the U.S.’s acceptability of JBS’s acquisitions, and play a major role in the decisions by the Dept. of Justice.
We have also taken into account the timing of such acquisitions by JBS of beef packers, which all occurred at a point when U.S. beef markets and industries were facing many hardships. The 2007 outbreak of E. coli greatly affected domestic sales as well as the exporting of beef products to European nations. The U.S. beef industry was also facing issues with declining herd sizes, overcapacity, and declining production due to increases in feed and fuel prices. The combination of culture shock, and a large acquisition of debt when purchasing firm forced to JBS implementing tighter control on expenses and improvement on efficiency.
Substitutes
The beef and pork products produced by JBS Swift & Co. were viewed largely as simple commodity products by consumers. This lead many consumers to purchase products based on price difference, not by brand loyalty. Many consumers were willing to switch brands of beef and pork products to take advantage of lower prices. Consumers also had other options available, such as chicken, turkey, and soy substitutes. With many consumers switching towards low fat products and diets consisting of less red meat products could lead to a decrease in profits for JBS since it was focused in beef and pork industries. Over the decades in the U.S. beef processing firms had competed away their own profit margins, giving consumers a great advantage. Unlike Brazil, within the U.S. consumers had choices and opportunities available at will to choose products by JBS Swift & Companies competition.
Rivalry between firms and the available substitutes of beef and pork products would be greatly affected if JBS choose alternative actions. Wesley’s choice to completely revamp the organizations structure completely redirected the organization. While these business objectives greatly helped reduce unnecessary spending while improving communication and efficiency, which led to significant improvement of the company’s outlook. This is what ultimately led to JBS Swift’s central problem of trying to accomplish too much in such a short period of time. By choosing not to restructure the organization or to restructure it in a different manner or at a different time, then JBS Swift & Co. could have established themselves in a different manner. The decision made to gain U.S. market share of both beef and pork industries is another factor that JBS Swift could have done differently. Instead of acquiring so many different firms in such a short period of time, JBS Swift could have first established itself within the U.S. markets. There rush into the global markets could have been set at a slower pace, allowing them to take on less risk. This decision would have greatly affected Moody’s outlook on JBS Swift acquisition of more debt than it could handle at one time. Cattle suppliers were greatly affected by JBS Swift and its decisions to acquire competitive packaging firms. A decision by JBS Swift to purchase their own feed lots and cattle production facilities instead of competing firms would have greatly changed supplier’s view of JBS Swift. By choosing one of these possible alternatives, JBS Swift would have greatly preserved the company’s original culture and values.

















JBS Swift & Co. Work Cited

· Conditions of Access. JBS Swift & Company, n.d. Web. 8 Feb. 2010. <http://www.jbsswift.com/investor_relations/US_Bond_Investors_top.php>.
· CORRECTED-Brazil's JBS-Friboi to buy Swift for $1.4 bln. Reuters, 29 May 2007. Web. 8 Feb. 2010. <http://www.reuters.com/article/idUSN2929968420070529>.
· Herlihy, Jim. "Swift History 6-05." Swift Celebrates 150 years of Meat Industry Excellence. Swift & Company, 24 June 2005. Web. 8 Feb. 2010. <http://www.jbsswift.com/media/releases/Swift_History_6-05.pdf>.
· JBS - ON NM. N.p., 29 Mar. 2007. Web. 8 Feb. 2010. <http://finance.yahoo.com/q?s=JBSS3.SA>.
· JBS Swift & Company. Business Week, n.d. Web. 8 Feb. 2010. <http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=12424288>.
· Pore, Robert. Bruning asked to Investigate Proposed JBS Swift Mergers. Organization for Competitive Markets, 8 May 2008. Web. 8 Feb. 2010. <http://www.competitivemarkets.com/index.php?Itemid=24&id=95&option=com_content&task=view>.
· Rapoza, Kenneth, and Tony Danby. Brazil Food Co JBS Fast Becoming Turnaround Specialist. NASDAQ, 3 Sept. 2009. Web. 8 Feb. 2010. <http://www.nasdaq.com/aspx/company-news-story.aspx?storyid=200909031457dowjonesdjonline000678&title=brazil-food-co-jbs-fast-becoming-turnaround-specialist>.
· Siceloff, Mary. Marler Clark Calls for JBS Swift to Reveal Retail Distribution of E.coli-Tainted Beef. Marler Clark, 29 June 2009. Web. 8 Feb. 2010. <http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090629005339&newsLang=en>.