Avner Barnea

Graduate School of Business Administration,

Ono Academic College,
Israel

19 January 2010 1
The presentation is divided into 3 main parts:
 General notes related to competition law and its
enforcement in Israel.
 Definitions related to Competitive Intelligence.
 Cadbury experience in Israel- an analysis of a case
study- presentation and discussion.

 And also- about the sources of information.

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 The Supreme Court of Israel ruled that "freedom of competition is a clear
public interest; it promises efficient allocation of resources, freedom of
consumer choice, and increasing incentives optimization, development,
economic and social innovation.

 Competition serves as a lever for economic growth and improve living

standards Quality of life: free competition is also a necessary condition to
the existence of an efficient and healthy economy, and economic growth”.

 Fair competition – The prevention of competition-distorting practices, which

can lead to the reduction of competition in the supply of goods or services in
the supply or provision of which the parties to the arrangement are engaged,
from the perspective of a person who is not a party to the arrangement.

Source: http://www.antitrust.gov.il/eng

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 The goal of competition law is to prohibit anti-competitive
behavior, conduct and transactions.
Competition laws come to protect competition and are designed
to encourage competition in the marketplace.

 Creation or strengthening of market power is done in three ways:

1. Excluding competitors or exploiting customers by a dominant firm
(what is referred to as abuse of dominance, monopolisation or attempting to
monopolise).
2. An arrangement between competitors (horizontal practices) or non-
competitors (vertical restraints), the purpose or effect of which is to
harm competition or competitors and consumers
3. Merger operations: especially horizontal mergers, i.e. mergers between
competitors.

Source: http://www.antitrust.gov.il/eng

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 A dominant firm that wants to increase its profit, may try to hinder the ability of its
competitors, whether actual or potential.
 Create and sustain a position of market power (especially a monopoly) may involve a
series of losses to the public, making members of the public vulnerable:
1. First, this situation may help perpetuate market power by the disruption of market forces.
Market power restricts the ability of those competitors trying to increase their market
share.
2. Secondly, this situation may lead to below optimum allocation of resources.
3. Thirdly, this situation may limit the ability of rivals to invest
 A dominant firm is therefore forbidden from abusing it market power
 Where such abuse occurs, a competition law offence will occur.

Source: http://www.antitrust.gov.il/eng

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 CI is a systematic procedure of collection, analyses and
dissemination of business information mainly on
competitors and on the business environment.
 CI is one of the capabilities of the firm and supports its
business strategy process.
 Unlike data or information, intelligence gives us
insights into what can happen based on information
and past behavior.
 It is not Information Expertise, nor Business
Intelligence (BI) and not Marketing Research (MR).

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 Growing number of players in the scene.
 Number and complexity of Key Intelligence
Topics- KIT’s.
 Huge number of resources and information
explosion.
 Dynamic environment while many changes are
unexpected.
 Decision-makers need better tools to improve
their assessments and decisions.

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Cadbury had an attempt to enter to the Israeli
chocolate market in December 2002. It was blocked by
Elite Ltd., the local market leader in mid 2003 and
finally decided to withdraw. Since then, Cadbury
chocolates are not sold in Israeli market.

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 Cadbury, a global company with revenues of £6 billion
(2001) and no existence in Israel, set up a strategic
alliance with the Israeli company Carmit Ltd.
 According to the agreement, Cadbury will manufacture
the goods while Carmit will be responsible for
promoting these products through its marketing and
sales channels in Israel.
 Cadbury agreed to support Carmit with its global
marketing experience and also allocated £2 million for
promoting the entrance to the Israeli market.

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 Cadbury considerations were based mainly on the
information received from the local distributor, Carmit.
 The Israeli market was ready for quality chocolate
products.
 Cadbury was affected by the information supplied by
Carmit about the potential of the market as Carmit had an
extensive and prosperous experience in the local market
and was proving financially strong.
 Carmit designed a penetration strategy based on refraining
to threaten Elite.
 Cadbury’s strong confidence relied also on taste tests held
in Israel showing that the Israeli customers enjoyed its
products.
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 Carmit was a medium size Israeli public company mainly
in sugar confectionary with a limited experience in
marketing chocolate and actually was never in direct
competition with the local leader Elite.
 Carmit was very successful in its niche market and also
had strong logistical capabilities.
 Carmit had decided that to extend its revenues it had to
collaborate with a global company and to sell it goods in
the local market.
 According to a market research presented to Carmit,
the size of the local Chocolate market is approximately
£250 million, while Elite held 70% of this market.

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 £200m annual revenues in the chocolate market in
Israel (70% market share). Also leading the local
coffee market. Officially monopoly since 1989.
 One of the strongest brands in the market and very
liked by the customers. Operating in the market for
70 years.
 Prior to the arrival of Cadbury, Elite announced that
it will spend £1.5m to meet the ‘incoming threat’.
 Elite is recognized for its aggressive strategy when
facing threats to its core business.

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 Agreement- signed between Cadbury and the local partner Carmit –
2002. It was published by the Tel Aviv Stock Exchange newsletter.
 Strategy – A local strategic consulting firm presented a proposal for
introducing Cadbury into the Israeli market. The outline of the plan
was:
1. Target market share – 15% in 3 years.
2. To enter the large food chains simultaneously with many
products(18).
3. To sign agreements with independent food distributors.
4. To favor a “Loud Launch” on a national scale.
5. To Expand and upgrade the management of Carmit, marketing, sales
and logistics.

 The strategic plan was presented and approved by Carmit and

Cadbury.
 Carmit had initiated the first order of goods, total value - $10m.

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 A few years ago Elite was successful in slowing
down the attempt by Nestle (through its local
partner )to establish itself in the Israeli chocolate
market.
 Elite launched an attractive sales campaign
(blockade campaign/ preventive campaign) two
months before Cadbury’s Launch.
 Elite is noted in Israel for being aggressive towards
competitors that are threatening its market lead by
carrying out a strategy of market share.

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 The launch of Cadbury was postponed from
October to December 2002 as the products
arrived late.
 The products were delivered to the food
chains and other stores as planned.
 The marketing campaign was launched
simultaneously to the entering to the shops.
 The sales results in the first week were
promising.
 Later reports showed reduction in demand.

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 The aggressive campaign by Elite was expanding
and it offered attractive deals to the customers.
 First complaints received from stores and
distributors about pressures by rival Elite
through illegal means.
 Sales of Cadbury were continuously declining.
 Reports in the media about the behavior of Elite
sales representatives towards Cadbury.
 The Israeli Antitrust Authority received the first
complaints and announced publicly that it
opened an investigation.

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 May 2003- Carmit decided to stop selling Cadbury in Israel.
Its assessment were that the chances to succeed were low
and the spending was higher than expected.
 The demand for Cadbury goods was lower than the
expectations
 Disappointed by the lack of intervention of the Antitrust
Authority.
 The Chairman of Carmit (July 2009): “We were surprised by
the intensity of the reaction by Elite, especially in their prices
strategy. The reduction of prices of their chocolates was
more than we expected”.
 Heavy losses to Carmit that almost brought to its
termination.

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 Carmit complained that “Elite used its monopolistic power against the
interests of the customers by pressuring on various elements in the local
market and succeeded in causing Cadbury to withdraw the market”(the
Chairman of Carmit).
 The Israel Antitrust Authority finished its investigation and announced (2003)
that “the alleged offenses committed by Elite, looked to be severe and the
potential convictions can be rejections to supply its goods and abuse of its
monopolist power”. The Authority was referring also to “alleged restrictive
arrangements between Elite and retailers by giving special discounts and
benefits in order to stop Cadbury in Israel”.
 2006 – The Antitrust Authority announced that it had reached to an
agreement that Elite will pay a penalty of £750k and pledged not stop any
competition by illegal means in the future. Elite did not admit any wrong
doing.
 Objection by Carmit was turned down.
 2007 – the Antitrust Tribunal approved the agreement.

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 Competition

Customer
Value

Price

Product Service
Quality Quality

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 …..“to prevent the creation of market power through
the regulation of mergers and anti-cartel enforcement,
to restrain abuse by dominant firms of their positions
and to preserve competition in the various markets.”

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 Cadbury / Carmit were not familiar enough with the business
strategy of Elite, especially in times of sever threat on its core
business.
 Cadbury / Carmit strategy to enter the market was based on
optimistic assumptions rather than on realistic ones.
 A better analysis of the market in advance may proposed to pick up
different strategy that could be more successful.
 An example: outflanking strategy/ The strategy of indirect approach-
In strategy the longest way round is often the shortest way there; a direct approach to the object
exhausts the attacker and hardens the resistance by compression, whereas an indirect approach
loosens the defender's hold by upsetting his balance).
 Cadbury/Carmit did not have a contingency plan in case they face an
intensive reaction by Elite.
 The overall customer value of the Cadbury goods may not be good
enough to overcome the unfair campaign carried out by the key
rival, Elite Ltd.

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 Cadbury / Carmit were unsuccessful in recruiting the
public opinion against the moves made by Elite.
 Cadbury / Carmit were unsuccessful in building
significant demand for their products.
 The response by the Antitrust authority was late and
did not create deterrence for future attempts against
monopolist powers in Israel.
 And finally - Cadbury may made a mistake by
collaborating with a local partner which was not
fitting for this challenge.

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Avner Barnea

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