For the Wilmar example given in the Simple Business Model topic, don’t they have a strong economic moat since they own the entire value chain? Would that not be an advantage and make the company more desirable?
I think the video uses Nestle as an example, but the note uses hartalega. Is there a reason why the example has changed? Hartalega does seem like a simpler business as compared to Nestle. Honestly, Nestle seems as complicated as Wilmar, considering the number of products it sells.
Hi Chia Hui,
If you look at Wilmar’s business model, they are integrated which is form out of different businesses into one entity. To understand Wilmar, you have to study plantation, refinery, shipping and fast moving consumer goods (FMCG). Do note this is just the value chain for one business in Wilmar which is the Palm oil but Wilmar have more than one commodity product in their business which are sugar, flour, wheat and etc. Hence, you need to understand all of the commodity and their individual value chain.
If you compare it with Nestle, they are just a FMCG business that have distribution set up already. So they just need to bring in more new product to sell in their distribution.
Looking at Hartalega, the business is only manufacturing of nitrile gloves which they are the largest nitrile gloves player in the world.
To sum it up, analysing Wilmar equal to looking at multiple businesses as compared to Hartalega or Nestle which is single business model.
Hope this clarify your doubts :)
Just some thoughts to add, since it’s not economic moat, I suppose they have less business risk since they control their entire chain(and diversified their products)?
I won;t say there is no moat in Wilmar as it required a lot of capital to build what they have done. Hence, new entrant will have hard time catching up to them.
Yes they are able to control their whole entire chain but they are unable to control how the price of the commodity that will always affect their upstream that make it more cyclical.
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