Fonterra Co-operative Group Limited PESTEL and SWOT

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Contents

About the Company

INDUSTRY STRUCTURE

EXTERNAL ENVIRONMENT

PESTEL analysis of Fonterra………………………………………………

TREATY OF WAITANGI

INTERNAL ANALYSIS

SWOT analysis of Fonterra……………………………………………….

COMPETITIVE ADVANTAGE

FORMULATION OF STRATEGIES

Impact of operating in a  global context on the Business Strategy

STAKEHOLDER’S COMMUNICATION

NO. OF WORDS_________________________________________________

PLAGARISM TEST______________________________________________

About the Company

Company Profile – Fonterra Co-operative Group Limited, popularly known as Fonterra is a dairy co-operative organization based out of Auckland, New Zealand which has operations in multiple international markets. It is the largest company of New Zealand with revenues in excess of $17.2 billion New Zealand Dollars and profits exceeding $800 million New Zealand Dollars. The organization is responsible for nearly 30% of the total dairy exports of the world. It is jointly owned by over 10,000 farmers of New Zealand and employs approx. 22,000 people. The organization in its current form was founded in the year 2001 by means of merger of two of the largest co-operative dairies of New Zealand viz. New Zealand Dairy Group and Kiwi Co-operative Dairies along with the marketing and export agent of all the New Zealand dairy co-operatives viz. New Zealand Dairy board. The key products of the company includes Milk, Butter, Cheese and Ice cream and the key markets for the organization includes New Zealand, Australia and Chile while having a significant presence in other countries like China and Sri Lanka. (Fonterra annual review, 2016)

  • Mission – To refresh the world in the body, mind and spirit means to provide the fresh quality of milk products to the customers which make them feel refresh and healthy.

 

  • Vision – to be natural source of dairy nutrition for all the young and old everywhere, everyday means to be the natural product provider, to be original, to be nature connected, provide natural quality to the people of all the ages.  

 

  • Goals/Objectives – to stay at the head as the market leader in innovative product introduction and successful product launches.

 

To strength and satisfy the needs of the more adventures generation of the consumers with a new eye, catching and functional product.

To become the market leader in the dairy product segment with increased markets shares

 

 

Organisation’s current strategic position is described What is the current vision, mission and strategic purpose?

Current situation or strategy of Fonterra : 

The vision of the organization is to be the world’s most trusted source of dairy nutrition. The mission of the organization is to shape the dairy industry in quality and innovation with their can do attitude and a collaborative spirit. The objective of the organization is to share the goodness of dairy nutrition with the world through their brands, farming and processing operations across four continents. (Careers at, n.d.).

Fonterra enjoys a major position in the economy of New Zealand currently owing to its huge contribution to the total exports. However, the current situation of the organization is signified by a low growth in terms of sales and profits. The company currently faces several issues related to strong competition especially in the emerging markets, increased costs, limited access to capital, lack of strong and efficient decision making, low value product line etc. (Coriolis, 2010).

Business Strategy (PORTER’S GENERIC STRATEGIES)

Organisation’s current business strategy is evaluated by applying porter generic model

What is the current business strategy (by applying Porter’s genericstrategies)?

The current strategic focus of the organization can be understood by the use of Porter’s Generic strategies. As per this model, an organization can have any one of the four generic strategy based on the competitive advantage and competitive scope viz. Cost leadership, Differentiation, Cost focus and Differentiation focus. The key competitive advantage that Fonterra has been enjoying relates to the low cost of production due to its co-operative structure which allows it to enjoy and economies of scale as well as preferential access to milk from its dairy farmers. The company also has a broad set of target market in which it serves as it is present in various countries across continents including the emerging markets. Hence, the current business strategy that Fonterra has been applying is found to be that of Cost leadership as per Porter’s Generic strategies model. (Porter, 2007).

Cost leadership : Their cost controlling strategy is also helpful to them in achieving and to compete with their competitors like they are delivering the products at a lower cost using high technology in production and delivering process ensure the reasonable price for high quality products.

Differentiation- Their quality management system helps them in ensuring the quality of the product which includes their supply chain management system helps them to manage backend integration of manufacturing activities. Their quality range management systems and extended range scanning process helps to improve the quality of product.

Focus Strategy- Fonterra using the above innovations that focus on the strategic outcomes such as producing milk and ensuring milk quality and safety. Pioneer of using PDA to collect and coordinate sales task force. Moreover using the worldwide IT infrastructure use to manage global expansion.

Comment: This is a good organization introduction

Shows analytical skills in application of the knowledge of strategic management

 

 

 

INDUSTRY STRUCTURE

  • Brief  Description of the Industry

The history of dairy industry in New Zealand dates back to the year 1814 with the introduction of Shorthorn dairy cows followed by establishment of the first dairy cooperative in the year 1871. By the year 1930, there were nearly 500 dairy cooperatives in New Zealand which later consolidated into 4 dairy co-operatives by late 90s’ viz. New Zealand Dairy Group, Kiwi Co-operative Dairies, Westland Milk Products and Tatua Co-operative Dairy Company. Later, New Zealand dairy group merged with Kiwi Co-operative dairies to form Fonterra while Westland and Tatua operate independently. Approx. 74% of all the dairy herds are located in the North Island with the greatest concentration in Waikato region which stands at over 34%.

(Stringleman & Scrimgeour, 2009).

 

  • Industry Analysis

The dairy industry in New Zealand is one of the biggest contributors to the New Zealand economy. The dairy industry contributes nearly 25% of total New Zealand merchandise exports out of which over 42% comes from whole milk power, 16% from Butter, AMF & Cream products, 12% from cheese and rest from other products. For the year ending 2015, New Zealand dairy companies processed over 21 billion litres of milk.

Porter’s five forces model is applied.

 

Porter’s five forces for Dairy industry  Power of the buyer      

  • The power of buyer is high as there is no switching cost that means buyer can easily switch to any other product of his choice  
  • It depends upon the taste or knowledge of the buyer regarding the product that what the product is what its benefits are.  
  • Industry products are undifferentiated , Moreover it is also concerned that does the buyer is health conscious or Price conscious.

Threat of substitutes

  • Threat of substitutes is low in New Zealand because there is only one major product and that is cow’s milk however the substitutes are sheep, goat, soy milk nut still there is no risk for the cow’s milk

Rivalry among existing competitors

  • Rivalry among Competitors is high because competitors such as Nestle, Kraft and meadow fresh have some share in the market nut are also in the race of growing and developing, they are also offering the same products with almost same pricing so fixed cost are high and marginal costs are low.
  • Free trade act could be beneficial to the competitors as well as exit barriers are low.
  • Same use of technology by the competitors as well that means they are of equal size and industry growth is slow as well Threats of new entrants
  • Threats of new entrants are very low for the dairy industry in Newzealand because almost 80% of the dairy farming or the manufacturing is newzealand based.
  • Newzealand is known for dairy farming and their main source of income is from the dairy farming as there are 6.4 million cattle in newzealand which is more than the population.  
  • Further government regulations are also very genuine because the government knows as well if they tighten the rules for the dairy industry or dairy farming than may be country suffer with loss and its economic condition will fall down. The only threat to the newzealand.   
  • There is no customer switching cost for this industry because if anyone want to buy the product of Anchor than he or she will go that but if anyone  do not want it and buy Meadow Fresh than its his choice.
  • Capital requirement are very high in the dairy industry as in newzealand it is on the large scale, there is the very big dairy market so its very hard to invest or to compete at the same level with the same capital.

 

The power of the suppliers

  • Power of suppliers is low in dairy industry as there are limited suppliers in dairy industry in New Zealand.  
  • There is no significant switching cost here as well for changing the suppliers
  • They can offer the differentiated product but not on a very large scale like the product came from the same source that is cow at the end but its scientifically treatment  differentiated a lot, some companies do it in one way and the other in other.

 

Very good industry analysis

EXTERNAL ENVIRONMENT

 PESTEL ANALYSIS

PESTEL analysis is carried out. Discuss external environment impact by conducting a

PESTEL

Describe the overall impact to the organization

PESTEL analysis of Fonterra

The Pestel in terms of dairy industry  is part of agricultural industry and deals with the production consumption and sale of milk, butter, Cheese , cream and milk cream. There are many factors which affect the running of the dairy industry and a PEST analysis of the industry is as follows:  Political

The govt. of New Zealand is a stable one and has clear policies on nearly all the aspects. Government policies and regulations regarding agricultural products will affect the farmers decisions to keep livestock and extra milk out of them relative to other uses of livestock government policies and incentives are in favor of for example promoting beef and mutton would be more in farmers interests to slaughter their cows rather than draw milk from them. This is especially true in agrarian economies. Dairy industry is affected by the government laws and the foreign relations.

Fonterra is one of the most important companies of New Zealand for various reasons including farmer welfare, export revenue, employment etc. It is also considered to be a strong representative of New Zealand in the international markets. It was created with an objective of having an anchor company for New Zealand just as Nokia was for Finland. All these reasons made Fonterra as an organization which was important enough for the govt. to work in favour of positive growth at Fonterra.

Eonomic

The most obvious economic factor affecting the dairy industry would be purchasing power in the economy as a whole. Increase in purchasing power however can lead to an increase in the acquisitions of pets such as dogs and cats and their spending on these pets will increase. This means they will be purchasing more milk to feed their pets and this will increase in sales of the milk. In case of the dairy product other than milk, an increase in purchasding power will cause an increase in consumption while the decline in purchasing power will have the opposite effect.

Fonterra is affected not only by the domestic economy of New Zealand but by the global economy overall as it has significant operations in a lot of international markets. This can be realized from the fact that about 95% of its New Zealand production is exported overseas. It also has dairy farms in other countries like China which it uses to satisfy the local demand in such countries as well as in the nearby regions. Hence, the local economies of such regions also have a significant impact on the operations of Fonterra. While the economy of developed countries like New Zealand and Australia do not offer significant growth opportunities for Fonterra, it is largely offset by the strong growth opportunities presented by developing nation economies like India, China, South American and African countries.

Thus, overall the economic factor is largely positive for the organization.

Social

A move towards vegan lifestyle will negatively affect the sales of the dairy products. Vegans make it point to shun all animals’ products including milk and eggs in their life style including their diets, As this lifestyles gains more and more followers the sales of the milk and other dairy product with decrease negatively impact the dairy industry. Another factors is then Halal products which are consumed by the Muslims, Other than the milk, the milk products like ice cream, Butter are considered to be halal before they are launched in the market or being manufactured.

As noted earlier, Fonterra is one of the most important companies in New Zealand due to the high level of impact that it has on the local economy in terms of farming and employment. Coupled with the extensive CSR activities and other social initiatives that the organization conducts, the social image of the organization is largely positive. Furthermore, the Treaty of Waitangi has a significant social relevance to the organization as the treaty gives the ownership of land to the Maori community and dairy farming on this land is critical for the organization. However, due to largely positive image of the organization and its importance to New Zealand economy, it does not face any significant issue related to the same. As a result, the social factors for the organization can be considered to be positive.

Technological

Technology has made it possible for dairy manufactures to market several kind of dairy products, Along with several variants of these products at a very low cost. A main factor in the upward trend of ten dairy industry has been pace with which technological advances have been the pace with which technological advances have been embedded into farming practices, often enough under the pressure of the falling prices and the necessity to vindicate land values resulting from the excessive optimism in periods of rising prices.

Fonterra practices a cost leadership strategy to govern its business operations which entails that it has to use various technological advancements available to the organization in order to maximize its output while keeping the costs on a lower side. The organization has been fairly successful in doing so as it has been able to procure the input materials from its suppliers at lower rates for the dairy farms as well as process the same using the technically sound methods and tools available to the organization. Furthermore, it uses sound technologies in maintaining and developing its dairy farms in other countries as well. Hence, the technological environment can be considered to be favorable for the organization.

Legal

The laws imposed by the FDA in United States have affected the lot of milk organizations in the New Zealand. Like for the milk industries or the milk products manufacturers it’s important for them to label that if there is any gluten or nuts consist in the product, This may also includes the serving sizes number of servings per containers well as nutrient information’s. Other than that are the agreements like there are two different types of the agreements between the farmers and the manufactures which includes different rules and concepts which one should have to follow.

While Fonterra has always tried to comply with the local rules and regulations as applicable to the organization, there have been certain cases in the past such as the baby milk powder issue in its Chinese operations and river pollution issue in New Zealand where the organization had to face legal actions and consequences. However, the organization has tried to manage these issues in an efficient manner as it was made aware of the same. Furthermore, the legal environment in almost all the nations are becoming more strict in terms of health and nutrition as well as environmental laws. Overall, it can be said that the legal environment is a challanging aspect for the organization to maintain.

Environmental

The New Zealand industry is heavily dependent on the health and availability of the livestock. Plauges epidemics and other diseases affecting the livestock more specifically the cattle which reduce the quality of the  milk and supply will adversely affected if the livestock is killed off. In warm climate effect the production of the milk manufacturer as in this climate they have to preserve the milk in order to increase the milk durability.

As noted earlier, the organization has faced issues in its past as related to the various environmental protection issues such as pollution of a river in New Zealand. With the increased level of awareness about the environmental impact of the business operations globally, the norms for environmental protection and conservation are becoming increasingly stringent. As a result it can be said that the environmental aspects as applicable to the organization are challenging.

 

 

TREATY OF WAITANGI

Impact of Treaty of Waitangi is discussed

 

The organization does gets affected by the Treaty of Waitangi which implies that the land ownership in New Zealand is under the authority of the Maori community. The business operations of Fonterra is heavily dependent on the land resources in terms of dairy farming. This implies that the Maori community can have a significant impact on the operations of the organization. (Orange, 2015). However, due to largely positive image of the organization and its importance to the New Zealand economy, the organization has not faced any significant issues related to the same. Therefore, overall the political environment is highly favourable for the organization. Furthermore, the Treaty of Waitangi has a significant social relevance to the organization as the treaty gives the ownership of land to the Maori community and dairy farming on this land is critical for the organization. However, due to largely positive image of the organization and its importance to New Zealand economy, it does not face any significant issue related to the same. As a result, the social factors for the organization can be considered to be positive. Further it is also written in treaty of Waitangi that any industry opened or going to open should not have any effect on the natural things including environment, animals, land so in order to that they are not forcing cows to give milk or to do production , they are not allowed to behave bad or to be cruel on the animals because in some countries like India, Pakistan, Indonesia and some parts of china which were effected by diseases like swine flue, Salmonella, Zoonetic diseases , These all is just due to the animals killing or not feeding or vaccinating them properly, cruelty or forcing could be the another reason.

It follows the principle of not harming the natural resources of New Zealand Like they do not do anything or experiment which would harm the environment or disturb it in any way, it includes the land , animals and local people as well so in this way they are saving the nature. For example to ensure the people their every product is natural everyone can notice the thing that on the milk bottles there is the sign of nature that they are connected with the nature and promoting to save it as well.

Comment:External analysis is well done

 

INTERNAL ANALYSIS

 SWOT ANALYSIS

Detailed SWOT analysis performed.

SWOT analysis of Fonterra

  1. Strengths

The most important strength that Fonterra enjoys is its strong brand value in the markets that it serves. The organization has achieved a strong market share in the global dairy industry by becoming responsible for about 30% of the total world dairy exports. It also has a wide diversification in terms of the markets where it operates. Also, it has a near monopoly in the New Zealand market. Further, its co-operative structure and farmer owned status allows it to procure the products at a lower rate. The products of the company too form a key strength of the company as they are considered to be of high quality by their customers. The company also enjoys a strong preference amongst its suppliers as most of the dairy farmers who supply milk to the organization are also the shareholders of the organization. (Coriolis, 2010).

  1. Weakness

The biggest weakness that the organization has is in the terms of its ownership structure. Fonterra is a co-operative organization which is owned by over 10,000 farmers. The shares of Fonterra cannot be owned by people other than farmers and is traded on a farmer exclusive platform. This type of structure restricts the access to capital for the organization as a result of which the company is not able to perform and grow well as compared to its corporate competitors. Furthermore, the board of directors of the company comprises of 13 members out of which 9 are farmer shareholders and 4 are independent directors selected by the farmers. This huge size of the board makes the decision making process slow and inefficient at times. The organization also suffers from a constant change of management.

(Coriolis, 2010).

  1. Opportunities

Fonterra has an extensive reach in terms of markets that it can access as well as the product range that it can enter into in these markets. The most lucrative opportunity as available to Fonterra is to grow in the emerging markets which are still in the early developing phase and pursue their future growth from these markets. Some of these markets are India, China, Latin American countries and African nations. Another key opportunity that the organization has is that it can use its strong brand value and financial resources to acquire the key players in these markets in order to create a quick and convenient platform for further growth in these markets. The company also has an opportunity to create low cost dairy farming infrastructure in these countries which will ensure a quality supply at cheaper rates for the organization.

  1. Threats

The biggest threat that the organization faces is in terms of competition, especially in the emerging markets. Due to the internal weaknesses as described above, the company has not been able to manage its international presence in an aggressive and competitive manner, as a result of which the market share of the corporate competitors of the organization has increased in such emerging markets. Further threats to the organization includes currency rate fluctuations which have a significant impact on the profit margin of the company. Increasing costs of production at dairy farms and compliance with various rules and regulations such as environmental regulations etc. further pose threat of reducing the profit margin of the company. (Coriolis, 2010).

Good research and analysis!

 

COMPETITIVE ADVANTAGE

RBV- As per the Resource Based View approach, the key resource that offers a competitive advantage to the organization is identified as the strong and efficient supply network that the organization has in terms of its dairy farms. There is the contract between farmers and Fonterra company which includes the agreement called TAF ,trade among farmers in which it is written that if any farmer want to sell their milk or dairy farm to the Fonterra than he has to sign the agreement called TAF so Farmers who supply milk to Fonterra used to be limited in the number of Fonterra Shares that they could hold. Essentially, that number was based on the amount of milk produced by a farm. When a farm was sold, the Fonterra Shares would be transferred to the new owner, or redeemed by Fonterra. The principle of open entry and exit into and out of Fonterra meant that Fonterra had to be able to pay a Farmer for the Fonterra Shares at any time. Another Scheme is

  1. A Farm Source account holder, having registered in accordance with the Farm Source

Account Terms and Conditions; and

  1. a Fonterra Supplier, or
  2. a MyMilk Supplier

(a “Member”)

“Fonterra Supplier” means a person who supplies milk to Fonterra and includes farm owners, share-milkers, contract milk farm employees and herd managers and excludes My Milk Suppliers “Ceasing Supply” Should a notification of intention to cease supply be received and the decision to cease is not revoked or supply of milk to Fonterra ceases, you will no longer be eligible to participate in the Scheme and you will no longer be entitled to accumulate Eligible Spend Dollars. Eligible Spend Dollars will be locked from the final date of revocation or the final date that your supply relationship with Fonterra ceases (whichever comes first).

In completing a Farm Source Account application, you must supply your correct name and address. Using a false name or another person’s name (whether or not paired with a genuine address) may be fraudulent. Farm Source reserves the right to notify law enforcement agencies and to pursue any remedies that may be available in the case of improper use of the Farm Source Website and other systems. Farm Source Accounts, Farm Source Account cards, and Eligible Spend Dollars cannot be transferred, bought, sold or in any way traded, Members may opt out of the Scheme by written notice to Farm Source, and otherwise eligible Members will be automatically joined to the Scheme. From 1 June 2016, My Milk Suppliers may participate in the Scheme. My Milk Suppliers will earn Eligible Spend Dollars in accordance with these Terms and Conditions however any Eligible Spend Dollars earned by My Milk Suppliers cannot be redeemed until the date that the My Milk Supplier both becomes a Fonterra Supplier by signing (and having accepted by Fonterra) an application to supply form and supplies their first milk to Fonterra.

Currently there are 10,500 farmers in Fonterra who supply the milk to Fonterra,  Analysis of the key resource using the VRIO framework can be given as follows:

– Value: The company operates on the strategy of Cost leadership where keeping the costs low is critical. The cheap and abundant source in the form of dairy farms owned by the farmers as well as the organization provides critical value to the organization.

Rare: Having such an extensive supply network which allows the organization to fulfill 30% of the global export in dairy industry is certainly rare and not matched by any other organization in the industry.

Imitate: While it is not impossible for other organizations to imitate the access to such resource, however it will be highly difficult as well as require huge acquisitions and mergers to do so. Hence, the degree of limitability is significantly low.

Organization: Every dairy industry in the world relies on their dairy farming supply for their input material i.e. Milk. This is no efficient substitute available for the same. (Werner felt, 1984).

 Core Competencies

Organisation’s resources and capabilities are evaluated against industry structure and competition

Using Barnergy’s RBV model, evaluate the chosen organisation’s resources and capabilities in relation to competition and industry structure

  1. Supply network- There are very limited suppliers like those farmers who have TAF that is trade among farmers or A Farm Source account holder, having registered in accordance with the Farm Source Account Terms
  2. Organizational Structure- 10,500 farmers, 90,000 cows, 22,000 employees
  3. Machine and Equipment and Technology- Using the recycle and reusing technology by which they are using the water and saving the water by using it. Greenhouse gas mitigation technology to inhibit methane produce by cows. 86 per cent of our farms have nitrogen management reports, giving useful information that reduces the risk of leaching e have fenced more than 24,000 kilometers (97 per cent) of significant waterways on dairy farms which are now stock-excluded, along with more than 10,000 kilometers of smaller waterways.
Value rare Immutability organization
Y Y Y Y

Organization has sustainable competitive advantage in terms of VRIO structure.

 Comment :Very good understanding of the concepts is demonstrated thru application

FORMULATION OF STRATEGIES

Strategic problem is identified.

The key strategic problem of Fonterra lies in its weakness of inefficient management and capital structure which does not allow it to leverage on its strong resource capabilities. The key strategic issues of the organization can be given in a specific manner as follows: A. Lack of diversification into high value products.

B. Inability to access external capital to fund its further expansion to other developing nations.

  • Strategic Objectives

Strategic objectives and goals are clearly mentioned.

Based on the analysis of the various factors in the previous sections, the most ideal strategy objective as determined for the organization is to make significant changes to its capital structure and its management structure in such a manner that while the existing shareholders do retain the rights of ownership of the organization, they should be made willing to dilute their shareholding in order to obtain external funds to fuel future growth. Also, the decision making power should be given to a professional management comprising of an optimum no. of board of directors for quick and efficient decision making. The goal of this strategy is to achieve high value product diversification and increasing market share in developing nations.

  • Business Strategy (PORTER’S GENERIC STRATEGIES)

Available strategic options are discussed A business strategy that gives the chosen organisation a favourable position in the industry. Elaborate how this strategy will help the organisation to build a sustainable competitive advantage within the industry.

About a significant change to the mind set of the farmer shareholders to allow external shareholding for capital infusion and efficient management Because the Fonterra is totally depended on their farmers who have contracted with the Fonterra but that is not safe for the future purposes that means they cannot depend only on them. They should have to increase their suppliers by removing some of the entry barriers like some agreements which one has to sign before supplying the milk to the Fonterra. In order to this they can  also decrease the power of the suppliers and increase their powers because in the case the power of the suppliers is high the cost differentiation will be low and not in side of the industry but if the number of suppliers increase than the cost power will be in hand of the buyers.

One of the greatest opportunity for the Fonterra is to acquire the position in the international markets like in Latin America, china , India, Africa, Some of the UAE regions. The way how to make the profit from these countries , how to establish the position in these countries is challenging. First of all they have understand the local market that what the demand of the local market is. They have to use their strength that is brand value and the quality of their products which is considered as high by their customers and moreover they have to take help of the local partners that are the local farmers to understand the local market. They have to organize the joint ventures with them.

Like if Fonterra is launching the product in the international market but before that they have to understand the needs of the local market along with that they will come to know that who else is producing or supplying the same product is it is in high demand if it is than why. From that they will know about their competitors and how to compete with them which is one of the major threat. Further one of the major threat to the Fonterra is the climate change or the environmental hazards like global green house gas emissions or serious land degradation so the thing is Fonterra will not going to the open its plant in those countries where there is no or less greenery or the environment is not good for the production of the milk.

 

While entering the new market the one their weakness could be the dependency on the farmers as farmers are their shareholders. Other than that is the trade agreements with the countries like latest they have their trade agreement with the America but after elections and the change of prime minister they cancel the trans pacific trade deal which effect the company very much. Another weakness is constant change of management like their decision making process. So while making any plan they have to discuss it with shareholders that are with farmers as well because any kind of new plan or change may could affect some of their farmers and then they may be cancel their contract and withdraw their supply and while signing any kind of contract with the country they should have to keep their some demands like they can withdraw the contract whenever they feel unsecure or they should have to inform and  do some changes in their management to control that change.

One of the current problem of Fonterra is lack of diversification for which they have to do some innovation and changes like producing  the range of products but according to the requirement of the market.

Another problem is the ownership structure like now their shareholder is limited farmers means ones of those who have signed the contract or TAF trade agreement so that means there are entry barriers but in the other way they are totally depended on those farmers only this way the power of supplier is more than the power of buyer but they have to remove these entry barriers in order to make the hold and to increase their power so in this way they can negotiate the price as well to increase their profitability.

 Innovation, Organizational Change and Business Strategy

This strategy, if applied successfully will allow the organization to leverage on the efficient supply capabilities of the organization in order to achieve significant growth both in revenues as well as profits.

This strategy will require a change in the organizational structure in terms of removal of absolute control of the shareholder farmers on the organization and if their control decreases than the cost differentiation will be increase and company will be in profit. So the power to negotiate the price will be in the buyer hand.

Moreover the innovation and change will also improve the lack of diversification that if they produce the variety and quality of the product in order to compete and to maintain the position in the market as well.

Comment: Learnings in innovation was well applied

Impact of operating in a  global context on the Business Strategy

The strategy also dictates that the organization should form joint ventures with local partners to achieve quick and efficient growth in the local markets. This means that before launching any product in the local market of the any other country thay should have to analyse the local market that what is the requirement what the customers want.

Company should follow the multidomestic strategy under which it comes that the company should launch their product in the local market of that country but before that the company should have to check the demand of the customers if they donot do this than the same wikll happen to the Fonterra which happen in the past  in case of china. They launch the product called baby milk powder which declare unhealthy by the health nutrition of china so at that time they cancel their agreement with Fonterra for supplying the milk products to china. Than the company again improve the quality and launched the product in Chinese market which achieve the great success in china and after that time china come in the main market of importing the milk products of fonterra from newzealand. The company also gets local marketing expertise from the local partner.

Comment: Well done analysis and formulation of strategies

STAKEHOLDER’S COMMUNICATION

Communication and engagement with key stakeholders are described

The stakeholder communication strategy is Develop (through the communications team) a best practice “Master Communications Crisis Management Plan” aligned with the IMT’s Crisis Management Plan, as well as template documents for all foreseeable scenarios, and capable of being adapted by regional offices for local market conditions and stakeholder requirements.  We will develop a communications style and approach which better reflect Fonterra’s values and aspirations as well as best practice risk communications, to enhance trust in Fonterra.  Some of them will include:

Conduct a systematic review of the quality of Fonterra’s relationships with key stakeholders in all its markets to assist in enhancing trust and with effective management of any future critical event.

Consider the appointment of local advisory boards in each key foreign market to enhance capability, engage more sources of high-level advice and provide depth of knowledge of the politicians, regulators and opinion shapers.

Establish a best practice digital and social media strategy, including stand-alone elements in, and responsive to the needs and nuances of, each key market.

Enhance and sustain programmes for community investment, volunteering and giving as an investment in stakeholder engagement and goodwill.

Very good!

REFERENCES

Careers  at  Fonterra.  (n.d.).  Retrieved  online  from:

http://www.fonterra.com/content/fonterra/nz/en/careers/Careers-at-Fonterra.html

Coriolis. (2010). Fonterra & the New Zealand dairy industry: options going forward.

Retrieved  online  from:

http://www.coriolisresearch.com/pdfs/coriolis_firm_dairy_03_0909_fonterra_options_goin g_forward_101a.pdf

Fonterra  Annual  Review  2016.  (2016).  Retrieved  online  from:

https://view.publitas.com/fonterra/fonterra-annual-review-2016/page/1 Orange, C. (2015). The treaty of Waitangi. Bridget Williams Books.

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