Cristina Ciocirlan

Abstract

Ferrero SpA is a global company operating in the food industry since 1946. The
company, which has positioned itself as a seller of premium confectionery products has greatly
expanded its market position and presence in the past decades. The company had a rapid
expansion in Europe, with the establishment of commercial offices and production centers in
Belgium, The Netherlands, Austria, Switzerland, Sweden and so on. The company doesnt only
reveal the sweetest success story; it also gives a straight example on how to become one of the
world leaders when it comes to business growth and success. The choice of this subject wasnt
only determined by the seemingly undisputed marketing position, but also by their clever
expansion strategy. Their beginning was modest, but the results came unexpectedly successful.
The resource based view of the company seems to have contributed to its success and
rapid growth worldwide. A question that may be raised concerns Ferreros potential key
resources and how to derive a strategy to apply these resources in order to create synergy.
Another concept to bring into question will be why Ferrero would be different and how would it
achieve and sustain competitive advantage by deploying its resources. They transformed a shortrun competitive advantage into a sustained competitive advantage: the resources are
heterogeneous in nature and not perfectly mobile. And also, how can their valuable resources be
either imitated or substituted without great effort by a competitor? (e.g.: they purchase more than
25% of the global amount of hazelnuts). The answers are rather interesting as it follows.

Capable and resourceful

Ferrero is an Italian manufacturer of branded chocolate and confectionery products and it is the
third biggest chocolate producer and confectionery in the world. The Ferrero Group worldwide
now headed by CEO Giovanni Ferrero includes 38 trading companies, 18 factories,
approximately 21,500 employees and produces around 365,000 tons of Nutella each year 1.
Turning back to the 40 we can discover the basis of this success. Piera and Pietro Ferrero
transformed their pastry shop into a factory. They were the first Italian manufacturers after World
War II to open production sites and offices abroad in the confectionary sector, turning the
Company into a truly international Group. Pietro and his son Michele took the first significant
steps forward. The products created by Michele, who was very young were an innovative brand
solution. Another key to success was the effective organization of the sales network. Innovative
and prestigious brands have forged the indisputable success: nowadays, the company is
positioned on the 4th place in the world sector of chocolate industry2.
In 2015, Ferrero continued its development through two important acquisitions: in March, the
Company obtained the final approval to start the integration process with Oltan, the leading
company for collecting, roasting and trading hazelnuts in Turkey. The second acquisition, as of
August, was Thorntons, the chocolate confectionary company founded in 1911 in the United
Kingdom.3
The position of Ferrero is strong, indicating that the company excels in utilizing strengths to
create competitive advantages. The company focuses on its best assets: brand image, supply
chain management and financial position. With the help of the latter capabilities, Ferrero is able
to maintain its market leadership position, extend its sales in Asia, U.S.A and especially Europe,
as well as mitigating volatilities in hazelnuts or palm oil prices.
Until now we have innovation, brand name and acquisitions. But how exactly does the
RBV theory apply for Ferrero? First of all, we need to define it, based on the companys activity,
looking for the key drivers of strategy. In order to identify the companys resources we need to
1 "Michele Ferrero, Nutella owner and Italy's richest man, dies aged 89". afp.com.
15 February 2015. Archived from the original on 16 January 2016. Retrieved 16
January 2016
2 http://www.ferrero.com/the-ferrero-group/a-family-story
3 Idem 2.

understand its capabilities and finding the interconnection between these two concepts. So what
would be Ferreros resources?
As we well know resources can be classified in multiple categories. We are going to name
and define Ferreros tangible, intagible and human resources.

Tangible resources

Buildings
Plant
Machinery
Technical equipment
Furniture and fittings
Internal transport vehicles
Computers
Land
Cars
Raw materials

Financial resources

Budget
Cash flow

Intangible resources

Technology
Brand name
Patents
Property rights
Organization
Reputation
Culture
Copyright

Human resources

Skilled and creative employees

Specialists
Motivation

So why are the resources so important to identify and acknowledge? Because in this way we
can tell why firms are different and how they sustain competitive advantage by deploying their
resources. The RBV theory shows that the role of the firms resources is a foundation for its
strategy. We need to explore the relationships between resources, competition and profitability.
The resources and capabilities should provide the basic direction of the firms strategy and they
are a primary source of profit for the firm.4
For Ferrero the resources are indeed a basis for corporate profitability. The question we may ask
is: What makes Ferrero different from the other confectionery firms and why?
Nowadays the
industries are not well-known for making easy profits, but for the vigorous competition. So how
did Ferrero successfully survive international competition, technological change and the
diversity of firms? Because it has been more effective than its rivals at picking and controlling its
resources. We will begin with the tangible resources:
The company is selling unique and inimitable products. Theres no where you can find a
similar taste. How did they manage? Through a dedicated technology and tailor-made
machineries, conceived specifically for each kind of product. They have patented their wrapping
machines, packaging containers. They even made up several machines for their specific products
such as a device for wrapping of spherical objects having small protrusions (4510735). The
company got that big that they began manufacturing their own machines to create unique
products. Each product is the outcome of a specific technology. By developing in house
prototypes and ad-hoc machines they heavily invested in innovation. Also Ferrero is widely
known for its secret recipes. So its hard to compete with a company that is self-sustainable, it
creates its own technology and equipment and delivers first class sweets.
Ferreros success doesnt only lie on the quality of the products, but also in the added
value coming from the in-house development of technological solutions. It produces 50% of its
own production machinery and technology. This was a great resource based strategy that has
risen the revenues of the group from 5.1 to 8.4 billion, with the Italian subsidiary reaching a
turnover close to 2.55.

Other major assets of Ferrero are land ownership and raw materials. Ferrero consumes
more than 25% of the worlds hazelnuts supply. They purchase Oltan, a Turkish hazelnut
supplier, last year to assure that it would be exempt from market fluctuations in nut prices. Why?
Because Turkey is the largest producer and sets the international market price for hazelnuts. In
the interest of meeting ongoing demands, reinforcing its leadership position in the world hazelnut
market and set out high quality hazelnut supply in the medium term, Ferrero launched a strategy
oriented to the development of new production opportunities. To reach this objective Ferrero has
created the Ferrero Agricompanies in Chile, Georgia, Argentina, South Africa and Australia.
4 Grant, 1991
5
http://www.ferholding.com/Document_3a_Published_accounts_of_Ferrero_Internation
al_S.A._2013.pdf

This strategy incentivizes and promotes the cultivation of hazelnuts with local operators and of
course guarantees a great revenue for the company.
But what strategy does Ferrero have when it deals with an environmental issue? Thinking
about the extent of the companys assets and its production we get to the point of the
environmentalists. The primary ingredients in most of the products are hazelnuts and palm-oil.
Considering the large scale of the sales, we see a major culprit in deforestation, which has
massive negative impacts on the environment (Ferrero sources about 80 percent of its palm oil
from Malaysia). We recognize the growing industrialization of the company, but how would
Ferrero define its values in a situation like this? Through the Palm Oil Charter6. They
implemented a plan that stipulates a global responsible palm oil procurement policy requiring
palm oil that is traceable according to the RSPO Segregated supply chain. They achieved 100%
traceable segregated, RSPO-certified palm oil by the end of 2014, nearly one year ahead of their
original schedule.
This leads us to Ferreros culture: it is said to be based on social responsibility and inspired by
behavioral integrity and transparency. They careful select the highest quality raw materials in
order to deliver high standard products. The companys motto is Work, create, donate,
conceived and introduced by Michele Ferrero at the very beginning of his business pursuits.
Basically, they should be the one who take action over the practice of appearing 7. Of course,
they need to be customer oriented and inspire responsibility. They claim to have strong ties with
the local Communities in the territories where we operate.

The goal of every company is to coordinate these resources and to combine them within
organizational processes to get to the desired income. They are developed over time through
complex interactions among the firms resources.

6 http://www.ferrero.com/group-news/Ferrero-Palm-Oil-Charter
7 http://www.ferrero.com/the-ferrero-group/our-values/attention-towards-consumers

Entrepreneurs
hip

Ferrero's
capacity to
innovate

Learning

Sense and
response
Marketing
skills

Figure 1 Ferreros capacity to innovate

Financial resources
Internal/External funds

Resources

Technical resources
IT systems
Technical equipment
Machinery
Intagible resources
Human
Knowledge
Brand
Patents

Figure 2 Resources that determine Ferrero's capacity to innovate

Entrepreneurship Ferrero family was well known for the entrepreneurial spirit. Starting
modestly, a small number of family members took the company on the peaks of glory due to a
long-term vision for the firm that aims at higher growth by introducing innovative products and
technologies.
Learning The company never missed a chance to acquire knowledge. They recombined
existing
knowledge and skills, and adapted to changing market conditions. See the technological and
machinery innovations in order to increase its profitability and sustainability.
Marketing skills They facilitate the implementation and exploitation of innovation. Ferrero is
known to make good use of media to extensively promote its products. Each Christmas or Easter
they organize a marketing campaign (e.g.: the golden Christmas tree).
Sense and response Its the ability to predict future changes on the market. Ferrero seems to
always be a step ahead.

So, does Ferrero receive the competitive advantage? Yes, it does. Its competitors, Mars and
Nestle dont apply such an extensive marketing campaign (e.g.: they do not organize seasonal
promotion during Easter or Christmas, but they launch, of course, from time to time makes other
kind of operations 80 years celebration for example). Even though, Ferrero is a little bit more
expensive than the others, it still has 44,8% market share, compared to 28% (Mars) and 14%
(Nestle). Besides, Ferrero seems to be more involved in societys issues and people oriented
within its social responsibility campaigns.

Conclusion
In this paper we identified and analyzed Ferreros resources and capabilities: tangible,
intangible, human and financial and explored the linkages between them. We proved that Ferrero
has potential for sustainable competitive advantage through its high class products.
The companys strategy was always well organized and they have been and still are
exploiting their strengths and trying to correct their weaknesses. Its all about a market oriented
strategy and it seems Ferrero has found the key to success.
Ferrero offers unique products and concepts (many of Ferreros products invented new
categories), freshness and quality management and extensive product testing, being the market
leader.
This confirms Ferreros constant commitment to top quality and innovation, strongly
engaging towards sustainable agricultural practices and the protection of the environment, all key
elements of its global success.
This time, resources and capabilities helped formulating the strategy. In this way, Ferrero
constantly defines its identity and profitability. We understood the relationship between
resources, capabilities and competitive advantage and how you can maintain the latter over time.
Therefore, each company should exploit its assets and specific characteristics.