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Fonterra Cooporative Group Limited globalization and competitive

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5/12/16 Marketing Reference this

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In this report is are discussing about the how the Fonterra Co-operative Group Limited (Fonterra) can gain the competitive advantage in the market and what strategies has been adopted by the Fonterra company through globalization, under the finding of this report it will evaluated the SWOT analysis of Fonterra company ,by using the SWOT analysis how Fonterra can clearly know the company’s key business structure and operations, history and products, strength ,weakness ,Opportunity and weakness ,beside that it also discuss about the porter five forces about how Fonterra have adopted the strategies to gain the competitive advantages in global market and how Fonterra compete with the competitor . Beside that this report also discuss about how the Fonterra adopted the total quality management, brand strategies, product repositioning and supply chain in order to sustain it success in long term

Some research has been done to write this report. All the research sources are based on book, website, journal articles, and media articles. The information from the sources helped to discover how Fonterra the increase the market share in some market such as using alliances strategies in some high competitive market ,how to repositioning to gain more market share and how their establish the brand into the consumer mindset

1.0 History of Fonterra Company

Fonterra Co-operative Group Limited (Fonterra) owned by New Zealand dairy farmers and it representing 96 per cent of all dairy farmers in the country. As we know the Fonterra Co-operative Group Limited was established in year 2001 from the merger of the two largest cooperatives which is New Zealand Dairy Group and Kiwi Co-operative Dairies. (http://www.fonterra.com/wps/wcm/connect/fonterracom/fonterra.com/our+business/fonterra+at+a+glance/about+us/our+history) through the merging within 2 companies, Fonterra gaining the monopoly control of the New Zealand domestic and export dairy industry. The headquartered of Fonterra the office is in and employs 15,600 people. Beside that Fonterra supplies nearly 40percent of the global whole milk powder (WMP) market (http://www.nbr.co.nz/article/nzx-launches-milkpowder-futures-103322) and with revenue exceeding NZ$16 billion and they become one of the world’s largest dairy companies. The operating profit in year 2009 was was NZ$922 million as compares to the year 2008 the operating profit have been increased around NZ$ 324million .and the net income in year 2009 also increased around 73% compared to year 2008 which is NZ$244 million.( http://www.foodista.com/book/MB5XFZ2M/fonterra-co-operative-group-limited-swot-analysis)

As we know Fonterra is a supplier of dairy products and dairy ingredients. It principally engages in collection, manufacture and sale of milk and milk derived products. The company supplies value added dairy products to the customers around the world. In addition it also provides dairy ingredients which include, ready-to-serve beverages, butter, ready-to-serve creams, yoghurt, cheese, milk, ice cream, desserts and. Its ingredients are used to manufacture a wide range of dairy products for markets around the world.

We know that Fonterra is a dairy and dairy ingredients supplier. It is mainly engaged in the collection, manufacturing, and milk and dairy derivative product sales. The company offers value-added dairy products to customers worldwide. In addition, it provides dairy ingredients which include ready to drink beverages, butter, ready to serve cream, cheese, milk, yogurt, desserts, pre-proofed frozen pastry, and ice cream.a its ingredients are used in the manufacture of a wide range of milk Products in world markets. Some of the brand of Fonterra product we can easily found in market such as BROWNES, Anlene, FERNLEAF, ANCHOR, SOPROLE and TIP TOP.

(^ Leo Paul Dana, Jason Schoeman (2010). “An Entrepreneurial Innovation: Mega Cooperatives”. Asia Pacific Journal of Innovation and Entrepreneurship 4 (1): 67-88. http://jbia.jp/jpeg/APJIE4-1.pdf.)

2.0 SWOT Analysis

SWOT analysis can essential the sources for top level company data and information .by using the SWOT analysis we can inspects the structure of business and the operation of the company .beside that it also will provides summary analysis of the main source of revenue lines and strategy and also the key competitors and major products and services. The figure 1.0 below is the analysis the SWOT of Fonterra company

Strength

Have the stable and secures supply of the milk resources in long term even the global demand is outstripping supply because of the uniqueness shareholder relationship within the farmer

Due to the Fonterra is merging from 2 large of company of the large company in New Zealand so they pursue growth of the economic scale with the various resources.

New Zealand is a higher productivity environmental for daily product.

Large number expertise worker within the industry in the company.

Weaknesses

Due to the relationship of the supply is the vital of company to secure supply of the milk resources. The competitor could be pinch the supplier with the better price.

Because of the merge the company the resources and infrastructure are overlapping and got resistance o restructure and relocation the infrastructure and resources

Too reliable on climate and ecology .less efficiencies of the productivity compare to competitor.

Opportunity

They can reduce the barriers of entry in most market.

WTO trade negotiations due to the lowest cost suppliers.

The can increase the “clean green” image and value added of nutrition of it product.

Threat

Some of the country may increase the tariffs to protect the local suppliers.

Some of supplying competitor may start to adopt more global Strategy.

The legal and media crisis due to some issue.

Too rely on exchange rates

2.1 Porter’s five forces analysis

Porter’s five forces is a one of the strategies which can analysis the existing market and business strategy. By using these strategies Fonterra Company can develop effective strategies to raise your profitability, power, and competitive and understanding the competitive forces in your industry.

2.1.1 New Entrants

Due to the de-regulated market structure of New Zealand and them also one of the member of the free trade country. In this way they might attract entrants competitor who are based for export oriented supply and processing .most of the Participants are mostly of the global entrants who preferring the low cost supplier nation with strategy of increasing export share.

2.1.2 Supplier

Fonterra having the advantages in cost of items bought from suppliers because the have uniqueness shareholder relationship within the farmer. in the way the can get the lower cost supply and due to the relationship even the global demand outstrips supply of the milk resources they also will get the stable supply in long term. Beside that they also increase the efficiency of production in certain country such as India, china, Poland. For example they expending farm operation to increase production in china due to the current supply of high quality fresh milk cannot keep up with the demand of the current market for more information it can refer to http://www.sharechat.co.nz/article/9e40bb66/fonterra-milking-chinese-demand-expanding-farm-operations.html

2.1.3 Buyer

Buyer is plays an important role in the market because they is the one who create the demand in an industry .as we know dairy product is a standardized product .Fonterra are facing the volatile price of the dairy product because of the changes in supply and demand of the product this is because most of the consumer are changing the eating habit beside that due to the floods in the dairy producing country it already affect the global stock. So they introduce a new online sales channel for its dairy commodities which can quickly notice to the price change of the dairy product. (http://www.nutraingredients-usa.com/Product-Categories/Dairy-based-ingredients/Fonterra-develops-online-trading-for-dairy-commodities)

2.1.4 Substitutes

Dairy milk is a natural product how ever it also got some substitutes for it product such as soya milk, goat milk and other it will affect the demanding of the milk product in this way it might affect the profit of the Fonterra Company

2.1.5 Internal rivalry

As a global company, Fonterra have to compete with the competitor such as Nestle, Kraft and other which are the global operation industry and rapid growth in the share market. Even a Fonterra company is a merge from the 2 large in New Zealand but they also face the threat from the global competitor because they might using the free trade to increasingly global market strategies .Fonterra have been consolidate dairy resources in the industry by being merged into larger and more efficient competitor .

2.2 Total Quality Management (TQM)

Because fonterra is daily industry, the hygiene and health of the product should be awareness so that quality of the product are important to them because it might affect the image of the company if some customer was food positioning after taking the company’s product .so the internal quality control of the product are plays an important role to build the competitive advantages in the market and also meet the customer satisfaction .Total Quality Management (TQM )system have been introduce to their company. Through the TQM they can increase the ISO accreditation because this is one of the ways for them to control the quality of the product. By this way company will have high confident to their product and also can easily get the trust from the customer as well for example New Zealand dairy giant Fonterra said Wednesday it is “100 percent confident” in its milk supplies to a Chinese company under investigation over claims of tainted milk powder. (WELLINGTON, 2010)appendix 1 because of the TQM system they will highly defined the procedure and standards of their product. Beside that they also provided the training to all the staff evens the truck driver they also ensure they are well train and professional driver and meet the industry standard.

2.3 Strategies Repositioning

Business repositioning is a critical marketing concept that is often only poorly understood. Most businesses will benefit greatly from some careful thought about strategic repositioning and product repositioning (http://www.m-insights.co.uk/business-repositioning.html) for the Fonterra they are keep on investing in the consumer product division ,new Zealand milk well this is an option or decision from Fonterra .but in this way the core supply competencies of Fonterra will be overlook .

We know that Fonterra is a unique export-oriented global cooperation. They have won because of its experience in and knowledge of organizational respect for the dairy industry. In Asian countries, Fonterra has been re-positioning their Anlene product with the new clinically test which is protect bone strength within 4 week if women are drank 2 glass of Anlene hi calcium milk a day’s which able to reduces the amount of bone loss in post-menopausal after 4 week .thought the research Fonterra company has spent more than us$50 million on bone health research and it has conducted 18 clinical trials relating to bone health. In Indonesia Fonterra have gained the market share risk from 43% to 72% of the high calcium milk adult dairy product category and it become the market leader of the high calcium milk adult dairy product category across Asia and has experienced a 15% increase in growth this financial year 2009 due to the repositioning of the product Fonterra’s Anlene gets boost in Asia.

(http://milk-brand.chikaworldfood.com/T_13248_____fonterra%E2%80%99s-anlene-gets-boost-in-asia.htm)

2.4 Supply Chain

The supply chain can be define as the a collection of activities and organizations involved in moving products for example, raw materials from one point such as a manufacturer’s facility to another such as a customer’s distribution center. It includes the exchange of both material and associated information flows for example, shipment notices.

(http://ops.fhwa.dot.gov/freight/publications/ftat_user_guide/sec5.htm)

From the supply chain analysis, Fonterra can how and where the product resources from and how and where their selling end product. We know that Fonterra dairy is owned by the dairy farmers in New Zealand .they got approximately 13,000 milk suppliers and they also one of the shareholder of the company .beside the shareholder’s milk supply .Fonterra also got other addition milk supplier where from the other country such as dairy America and DFA from the united state, Nestle from the America,Bonlac from Austria and other because Fonterra is a international dairy companies. Fonterra have 80 plants around the world which for processing and manufacturing the resources. Beside that they also got 3 main research and development plants which at Massey (New Zealand), Mexico and Germany.

Fonterra is a world’s largest multinational food companies and they have a good global distribution network for distribute the end product to whole world because they have been exported milk out of New Zealand around 20 year ago. They are exported the end product to Asia Middle East, Africa due to the high demand of the dairy product. Due to the production of dairy product is much more then the demand on it country. Fonterra are more widespread to use of rail to shipping their products throughout the country. This will enable us to get more frequent, flexible and reliable shipping options by this way it can give their customers greater confidence that our products can be delivered on time.

In order to gain the market share and competitive advantages in the high competitive market .Fonterra are alliances with existing national dairy company in country to expanding dairy market. By using the alliance strategies they can expend dairy market in the country with the minimum cost. For example they have announce that a new joint venture in the United Kingdom’s highly-competitive yellow fats market thought the alliances they establishment a new company that to be responsible for distributing and market of the product of ANCHOR brand in the UK country domestic market and developing the new product for the yellow fats market in British Isles and EU respectively.

Fonterra mainly have divided the market place into 4 channels due to wide product range the four channels which is foodservice channels which is restaurants, hotels, bakeries. Retail channels such as supermarket, wholesalers, by product channels such as biotechnology, pharmaceuticals and consumer channel which is milk powder, cheese, yogurts and other. Each channel has different demand on the dairy product.

(http://www.highbeam.com/doc/1G1-79373875.html)

(Chen, I. J., Paulraj, A. (2004): Towards a theory of supply chain management: the constructs and measurements. In: Journal of Operations Management, 22/2: 119-150)

2.5 Branding Strategies

By using the branding strategies Fonterra can understand the customer preferences and expectations from the brand beside that it also can make you product different from other product .thought the branding it can build a strong position on the product and make it become more unique ,sustainable and valued place in customer’ mind .

A good brand strategy builds the customer loyalty which customer will continue purchase your product without reflect on the price. Fonterra are dividend their consumer business into three major regions which is Australia and New Zealand, Africa, Asia , Middle East and Latin America and it bring compound annual growth rate around 20% for the last four year

By using the branding strategies it bring the growth at 4-5 % per annum in the Asia Middle East and the market price is worth NZD$12.5 billion .by the estimate the consumption of the Fonterra product will continuing raise due to Asia and Middle East are starting focus on their health and wellness. The most successful product brand strategy in the Asia and Middle East is Anlene. As we know the Anlene was create in year 1991 in Asia which are the high calcium milk to maintain the strength of the bone and prevent the osteoporosis, by the successful brand strategies today Anlene has bringing in over $320 million per year which represent almost one-fifth of the total sales revenue in the Asia country .Fonterra have invest around $2-3 million annually on bone health research and looking how to develop new format and formulation of the Anlene product.

A research report from the International Osteoporosis Foundation showed that 286 million people in China will suffer from osteoporosis or low bone mass by 2020, and this figure may rise to 533 million by 2050.in this way they have launched the Anlene in china market. Instead of earning money they also conducted over 3 million bone scans in Asia country since 2006 beside that the also educated the consumer the risk of the osteoporosis and how to prevent it. For example they provided a free service to Malaysian consumer about the bone health check and beside that some of the consultant will give the advice on the consumer about what is going on and how to overcome the situation .for more information it can refer to appendix 1

Beside the milk powder of Anlene product, the Anlene Concentrate also have launched in the Asia country to target on different segmentation consumer .to build a good reputation of the Anlene product beside education some knowledge consumer and the boned check service they also hired Michelle Yeoh which is the action movie star in Asia and become spoke person of its product .it this way they manage to sell Anlene with the premium brand with is 30-50% expensive compare to the normal milk.

(http://www.fonterra.com/wps/wcm/connect/418dd400440c080d84b29e9906727cef/240610%2B-%2BCEO%2BAndrew%2BFerrier%27s%2Baddress%2Bto%2BSIDE.pdf?MOD=AJPERES)

(http://www.agro.uba.ar/agro/agroneg/pdf/strat_manag.pdf)

• Ireland, R D, Hoskission, R E & Hitt, MA 2009, The management of strategy concepts, 8th edn, South-Western Cengage Learning, USA

• Singh, K, Pangarkar, N & Heracleous, L 2010, Business strategy in Asia a case book, 3rd edn, Cengage Learning Asia, Singapor

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