Strategic Management of Fonterra

This report outlines the external business environment of Fonterra and its internal effectiveness in terms of core competencies and competitive advantage. Recommendations are also provided for improving market presence and revenue.

Running Head: MANAGEMENT 0
Strategic Management
FONTERRA

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Table of Contents
Introduction................................................................................................................................2
Product Lines and Business Units..............................................................................................2
External environment of Fonterra..............................................................................................3
Internal Analysis of Fonterra.....................................................................................................4
Competitiveness of Fonterra..................................................................................................4
Identification of the Capabilities............................................................................................4
Core competencies of Fonterra..............................................................................................5
Competitive advantage of Fonterra........................................................................................5
Recommendations......................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
Due to increase in competition and with the emergence of new players in the industry,
strategic management plays an important role for all business irrespective of size and scale
(Helfat and Martin, 2015). In Australia, Agribusiness is one of the major revenue sources that
is highly diverse and consists of various operations involved in agricultural services or
production across the food supply chain. As per industry statistics, this sector brings revenue
of around $289bn with employing nearly 641.7m people (ibisworld.com, 2018). In addition,
there is rise in opportunities growing in agribusiness sector that also presents increasing
importance for effective strategic management considering the organisation behaviour. One
of the leading company in agribusiness sector of Australia is Fonterra that is actually a New
Zealand based firm, however, they have huge market presence in the Australian market.
Fonterra is a dairy firm established in 2001 and presently the company gained the number of
being six largest dairy company in the world. The headquarter of the company is situated in
Auckland, New Zealand. At presents, the company have 21,400 as total number of employees
(Gaynor, 2018). Fonterra also has various subsidiaries such as Anchor, Anmum, Mainland
Cheese and Soprole. The company have partnership with various companies globally that
makes Fonterra be a global massive dairy exporter. Fonterra’s philosophy is based on “lead in
dairy” and with this principle, the company attained a competitive edge in the market.
This report outlines about Fonterra external business environment having significant impact
over their management decisions related to various functions. Furthermore, Fonterra internal
effectiveness in extent with their core competitiveness and competitive advantage will also be
recognised. After analysis all this, any strategic gap can be identified and thus several
suggestions can also be recommended.
Product Lines and Business Units
Presently, there are numbers of business Fonterra possesses in the Australian market where
the Fonterra brand includes consumer good section, Anchor food includes food service
supplies and NZMP ingredients include supplies of dairy ingredients (Sacks et al, 2015). This
diverse range of business units helps the company to server offers various segments of
customers with their variety of offerings. Considering consumer good section, some wide

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varieties of products are being offered such as Perfect Italiano ready to make meals, Western
Star butter, Anchor milk, Bega cheese, and butter. Under NZMP ingredients in Australia, the
dairy ingredients are being supplied by Fonterra to its various food manufacturer around the
globe. This lead Fonterra to serve both industrial and domestic needs.
However, the consumer division of Fonterra is bringing major revenue portion following by
food supply division and ingredient supply division. The key reason is the Fonterra market
share in both New Zealand and Australia including some of bestselling brand. Moreover,
consumer brands heavily determined the brand value of Fonterra.
External environment of Fonterra
 Political Factors – The political scenario in Australia is very favourable considering
government in place and this brings various benefits for Fonterra. For instance, the
Australian government is encouraging livestock sector so as to fulfil the rising
demand for meat and dairy (Muchuru and Nhamo, 2017). With all major economies
around the globe, Australia includes favourable diplomatic relationships and this
helps Fonterra to export their products from Australia to the other nations. However,
the dairy industry might be affected if in future the government frame in favour of
production of meat.
 Economic Factors – The Fonterra potential is increasing with the growth and
development of national economy of Australia. The rise in dairy products demands
also reflects positive economic impact in extent with export for Fonterra. However,
Fonterra market is also gets affected with entry of some international brands in the
markets of Australia. Furthermore, Fonterra has to sell its products more expensive in
Australian markets due to tight taxation policies in Australia (Stantcheva, 2017).
 Social Factors – The trend of consumption of vegan products is increasing in
Australia and this is considered to be one of major negative social impact for Fonterra
as it would directly reduce the demand for dairy products for Fonterra (Neo, 2019).
On the other side, Fonterra cheese products demand is increasing due to significance
of cheese in the cuisines of Australia. Fonterra market may be impacted by the
customer concern in relation to more fats in dairy products. Hence, with the changing
customer expectations, it is very much significant for Fonterra to update their product
portfolio. In addition, the population in Australia is becoming more expertise with the

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more inflow from various nations and if Fonterra offers particular product item, it
may hamper the potentiality of the company.
 Technological Factors – There is a significant increase in investment of technology
in this sector and Fonterra is one of the leading organisation possessing advancement
in technology in manufacturing and breeding process. The production process in
Fonterra is fully automatic and this provides the company with a competitive edge
over its competitors. However, to make technology in place, the company need to
invest more in its research and development department so as meet customer
expectations timely.
 Environmental Factors – In agribusiness, there are many issues prevailing related to
water and air pollution and there are strict rules and regulations considering
Australian environmental standards. Hence, Fonterra needs to maintain its business
accordingly. Past in New Zealand, the company already accused of some specific
environment degradation practices which make the company fined $362,000 over
pollution and now the company need to focus more on its sustainability standards
policies (Herald, 2015).
 Legal Factors – There are stringent legal standards in Australia particular in food and
beverage industry. In doing business in Australia, Fonterra is adhering to the primary
production and processing standards. In various countries, Fonterra products are
exported, however, some barriers come with strict regulations in the western
countries.
Internal Analysis of Fonterra
Competitiveness of Fonterra
To identify internal effectiveness of the company, resource-based view will be used that
reflects tangible resources of Fonterra such as human resource, machinery and manufacturing
facilities. These resources benefit the company in attaining competitive advantage in the
dairy industry. It also showcases its intangible resources such as goodwill of Fonterra, market
exposure, brand identity and quality that helps the company to stay ahead in the competition.
Identification of the Capabilities

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One of the key capabilities of Fonterra is their approach to human resource management
where the company give due importance to emotional intelligence as this help the
management to deal with employees effectively (Bortsie-Aryee et al, 2018). Another major
internal capability of Fonterra is their organizational flexibility where the company internal
processes and practices are designed in such a way that helps business to cope with
environmental change proactively and thus environment risks have a less impact on the
corporate practices. Market orientation is also one of their internal capability where the
company business strategies formed in align with market situation and scenario and thus the
company effectively able to fulfil the demands of the market and as per customer
expectations (Brouthers, Nakos and Dimitratos, 2015). Hence, it can be assumed that
coordination between their internal and external capabilities benefit the company to stay
ahead of the industry competition.
Core competencies of Fonterra
One of the key competency of the company is its global presence in the world. Other than
Australia and New Zealand, the company also have their operations in China, UK and US
(McGiven, 2016). The company have done various acquisitions and joint venture at these
locations. This helps the company to achieve economy of scale and fulfil larger portion of
customer market segment. This also gives the brand a global recognition and thus help them
to push their new products in further targeted market. Other than this, the company
competency can be effectively measured with its long-lasting diverse product portfolio. As
already discussed above that the company having several numbers of different product range
with respect to business units. Through this, Fonterra is being successfully able to cater both
industrial and domestic needs. The company business approach of dairy cooperative is their
another core competency. Different from its rivals, Fonterra source milk directly from the
farmers and this help Fonterra to deliver seamless supply if raw materials without having any
existence of intermediaries. In addition, social and economic status of farmers will also
enhanced with these practices.
Competitive advantage of Fonterra
To determine the competitive advantage of Fonterra, VRIO framework is being used that help
in identifying essential resources providing sustainable competitive advantage to the

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company considering vital strategic process. It stands for – Valuable, Rarity, Inimitability and
Organisational capability (Knott, 2015).
Valuable
One of the major valuable resources of Fonterra is its brand value that helps the company to
make a global brand name in all major developed countries. Furthermore, this strong brand
name and presence increase the sales of their newly introduced products and brings out more
profitability to the firm. The company advancement in technological position can also be
considered as their competitive advantage as these respective machinery and technology are
helping them to have updated production and less average cost of production.
Rarity
In form of cooperative, Fonterra has access to the local farmers. This eliminates various
intermediaries and helps them to supply of pure milk to both sectors. This is one of their rare
competitive advantages as major brands in this industry does not have this advantage. Hence,
this benefits the company to have advantage over their competitors in relation to lower cost
of raw materials and quality.
Inimitability
The company approach towards human resource management cannot be easily adopted by
any other company within the same industry as Fonterra follows extensive employment
management strategies that are not known by anyone. This provides them skilled and
competent staff in order to carry out necessary operations and thus with these employees, the
firm is effectively able to sustainable competitive advantage.
Organisational capability
As stated earlier, Fonterra possesses number of capabilities including market presence,
financial and number of business units. Considering all, Fonterra is able to successfully
operate in the global market and fulfil the diverse needs of customer segment.
Recommendations

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In respect with foreign nations, the company should have cooperative mode of business as
this will help them to attain competitive advantage that they acquired from Australia. It will
also benefit to have lower cost of production in foreign nations.
Next consideration could be related to product development which is one of the key strategic
intent and Fonterra is required to bring dairy-based products in the markets such as Ice-
cream. This will provide various benefits like increase target segments of customers, rise in
sales revenue and so on.
The company also need to ensure sustainability practices related to environmental standards
laid down by Australian government as they already faced several issues in New Zealand
concerning environmental degradation. This will also enhance their corporate brand identity
in the market.
Moreover, the company is required to focus upon market development strategy and
considering this, they need to enter into potential foreign countries. Furthermore, they need to
target the developing nations as some of emerging nations like India includes favourable
market opportunities and growth rates.
Conclusion
In last, it can be concluded that there are various numbers of positive and negative external
factors bound Fonterra in the Australian markets. This report outlines internal effectiveness
of Fonterra comprising their core competencies, resources and competitive advantage is also
being recognised. It can be assumed that to deal with external factors in Australia, Fonterra
internal effectiveness is sufficient however, the company need to expand its current market
share. Considering this, some of the suggestions are being presented in the report that will
help Fonterra to improve their presence in the market as well as revenue in the foreign
market.

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References
Bortsie-Aryee, N.A., Gabriel, C.A., Fennessy, P., O'Kane, C. and Walton, S. (2018) Resource
synergies for on-farm water management: a study of New Zealand
agribusinesses. Australasian journal of environmental management, 25(4), pp.398-419.
Brouthers, K.D., Nakos, G. and Dimitratos, P. (2015) SME entrepreneurial orientation,
international performance, and the moderating role of strategic alliances. Entrepreneurship
Theory and Practice, 39(5), pp.1161-1187.
Gaynor, B. (2018) Brian Gaynor: Does big pay bring big results? [ONLINE] Available
from: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12023441
[Accessed 28/03/2019].
Helfat, C.E. and Martin, J.A. (2015) Dynamic managerial capabilities: Review and
assessment of managerial impact on strategic change. Journal of management, 41(5),
pp.1281-1312.
Herald, NZ. (2015) Fonterra fined $362,000 over pollution [ONLINE] Available from:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11491232
[Accessed 28/03/2019].
ibisworld.com. (2018) Agribusiness - Australia Market Research Report [ONLINE]
Available from: https://www.ibisworld.com.au/industry-trends/market-research-reports/
thematic-reports/agribusiness.html [Accessed 28/03/2019].
Knott, P.J. (2015) Does VRIO help managers evaluate a firm’s resources?. Management
Decision, 53(8), pp.1806-1822.
McGiven, A. (2016) The Future Opportunities and Challenges for one of the World's Largest
Dairy Export Firms: Fonterra in New Zealand. Journal of Applied Business and
Economics, 18(3), pp.16-23.
Muchuru, S. and Nhamo, G. (2017) Climate change and the African livestock sector:
emerging adaptation measures from UNFCCC national communications. International
Journal of Climate Change Strategies and Management, 9(2), pp.241-260.

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Neo, P. (2019) Vegan expansion: Australia’s Woolworths and Coles striving to meet soaring
consumer demand [ONLINE] Available from:
https://www.foodnavigator-asia.com/Article/2019/02/26/Vegan-expansion-Australia-s-
Woolworths-and-Coles-striving-to-meet-soaring-consumer-demand [Accessed 28/03/2019].
Sacks, G., Mialon, M., Vandevijvere, S., Trevena, H., Snowdon, W., Crino, M. and
Swinburn, B. (2015) Comparison of food industry policies and commitments on marketing to
children and product (re) formulation in Australia, New Zealand and Fiji. Critical public
health, 25(3), pp.299-319.
Stantcheva, S. (2017) Optimal taxation and human capital policies over the life
cycle. Journal of Political Economy, 125(6), pp.1931-1990.