Tate & Lyle International Expansion Strategy: Lessons Learned

Introduction: T&L's Strategic Missteps

Tate & Lyle's international expansion strategy did not meet with success for a number of reasons. T&L sought to reduce geographic risk by increasing the number of international markets in which they operated. They also sought to develop higher value-added products in order to decrease their dependence on the low-value-added products they were focused on at the time.

One of the key missteps was to tie these two objectives together. The international expansion strategy was fundamentally flawed, and they eventually unwound many of their global positions. However, the new product strategy has since paid off, and T&L would have benefited from retaining those now-discarded global positions. The time frame for the new product component of the strategy was longer than the time frame for the global expansion component — something T&L did not adequately consider.

They also overlooked other important factors. They did not consider what, beyond the theoretical reduction in risk, they were actually gaining from their expansion. Such an expansion should be undertaken with the objective of either adding value or gaining sustainable competitive advantage. Even had the maneuver succeeded in reducing risk, it achieved neither of those other two objectives. None of the acquisitions possessed proprietary technology that T&L could leverage, nor did T&L bring any discernible operational improvements to the various acquisitions that would have made the purchases worthwhile.

Failure to Address Core Risk Factors

The international expansion strategy also failed because it did not sufficiently address the biggest risk factors facing T&L. In Porter's Five Forces, the two strongest forces squeezed T&L — the power of suppliers and the power of buyers. The supply of raw materials is subject to global commodity markets, and T&L was either unwilling or unable to hedge their exposure to commodity price fluctuations. On the other side, buyers exercised considerable power — particularly in the sweetener business, where high fructose corn syrup, for example, plummeted from 75% of U.S. profits to 10% within just a few years.

A further threat to T&L's profitability can be identified through PESTEL analysis — specifically the economic factor of currency risk. T&L simply failed to account for the additional currency risk they would face as a result of their international expansion, and as a result they lost £41 million in 1997 on currency transactions — a loss that could have been controlled with straightforward hedging techniques.

T&L was in a position where they needed to control either the cost of raw supplies or the price at which they could sell. Achieving one or more of these could have resulted in a sustained competitive advantage, but the international expansion strategy accomplished neither objective because it was undertaken piecemeal, with purchases made seemingly for the sake of making international purchases rather than from any coherent strategic rationale.

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