Perspectives of Global Business

Running head: PERSPECTIVES OF GLOBAL BUSINESS
Perspectives of global business
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Executive summary
The aim of this report is to discuss about the challenges and opportunities being faced by
Fonterra in doing business in China. The major motives and the business relationships being
maintained by them with the stakeholders in China are being discussed. In addition, PESTLE and
Porter five forces analysis are being done to identify the key external factors that are having
impact on the business operation. Moreover, it is also identified that Fonterra is seeking market
and resource driven benefits as per the OLI framework. This is due to the reason that Chinese
operation will help them to tap the lower cost of resources available in the country as well as the
huge population and opportunities waiting. SWOT analysis is also being done to identify the
internal effectiveness of Fonterra. Based on the SWOT analysis, there are numbers of positive
and negative factors being identified. This includes access to larger financial resources by
Fonterra will help them to initiate extensive investment in China and facing the ethical issues in
China will create barriers in maintaining their brand image and recall value. It is concluded that
there are number of internal and external challenges being faced by Fonterra and these
challenges will have serious concerns in the long term. Accordingly, a few recommendations are
being discussed in this report for Fonterra. These recommendations include initiation of product
development and cost leadership strategy. Initiation of the product development strategy will
help Fonterra in having market adaptable products for China and this will ensure higher market
penetration in the long term. On the other hand, initiation of the cost leadership strategy can
help Fonterra in gaining competitive advantages by means of attracting major customer bases
over their prime competitors.

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Table of Contents
Introduction......................................................................................................................................4
Motive for investment of Fonterra in China....................................................................................5
PESTLE analysis.............................................................................................................................6
Political factors............................................................................................................................6
Economical factors......................................................................................................................9
Social factors.............................................................................................................................11
Technological factors.................................................................................................................11
Environmental factors................................................................................................................12
Legal factors..............................................................................................................................13
Determination of the OLI factors..................................................................................................13
Porter five forces analysis..............................................................................................................14
Bargaining power of the buyers.................................................................................................14
Bargaining power of the suppliers.............................................................................................14
Threat of new entrants...............................................................................................................15
Threats of substitutes.................................................................................................................15
Competitive rivalry....................................................................................................................15
SWOT analysis..............................................................................................................................16
Strengths....................................................................................................................................16
Weaknesses................................................................................................................................16

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Opportunities.............................................................................................................................17
Threats.......................................................................................................................................17
Recommendations..........................................................................................................................17
Conclusion.....................................................................................................................................18
Reference.......................................................................................................................................19

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Introduction
In the current business scenario, entering in the foreign market for business expansion is
a much common sight with the phenomenon of globalization has engulfed the entire business
world. However, the recent trend of entering in the foreign market is different to what it was a
few years ago. At one of point of time, more business organizations from the developed
economies were entering in other developed markets in order to expand their business. This is
due to the reason that developed economies were having the highest economy growth rate and
posed the maximum returns for the businesses (Laufs & Schwens, 2014). However, this trend got
changed in the recent years with the major developing countries are taking the podium place in
terms of growth of national economy. Developing and emerging economies such as China and
India are the top two nations in terms of the economy growth.
One of the major examples of this concept is Fonterra doing business in the Chinese
market. Fonterra is the leading company in New Zealand and they are also one of the leading
milk exporters and producers in the world. Currently, Fonterra is having their operations in
Chile, Australia and China outside of their home country (fonterra.com, 2019). Among these,
China is an emerging country and constitutes one of major revenue portion for Fonterra. It is also
reported that China is the largest market for Fonterra in terms of sales and business operation.
However, apart from the successes being achieved by Fonterra in doing business in China, there
are number of probable challenges also to be faced by them.
This report will discuss about the business approaches being followed by Fonterra in their
Chinese operation. In addition, PESTLE analysis will be done to identify the major external
factors to be faced by Fonterra in operating in China along with the initiation of SWOT analysis

5PERSPECTIVES OF GLOBAL BUSINESS
to identify the internal effectiveness of Fonterra in dealing with the challenges. This report will
also involve the Porter five forces to identify the major competitive factors, which will have
impact on the business operation of Fonterra. In view to the challenges identified, a few
recommendations will also be stated.
Motive for investment of Fonterra in China
The major motive for Fonterra in doing business in China is market seeking and resource
seeking. This is due to the reason that China is the biggest country in the world in terms of
population and thus the major motive of Fonterra in entering the Chinese market is to cater the
enormous market opportunities. Moreover, the average cost of operation in China is lower as
compared to some other countries due to the lower cost of human resources and some other
resources. Thus, with having their operation in China, Fonterra is being able to enhance their
profitability by regulating the cost of operation. Prior to the entrance in the Chinese market,
Fonterra was not having presence in the Asian market and thus with the entry in the Chinese
market, they have being able to tap the opportunities remained in the Asian region (Pavlovich,
Sinha & Rodrigues, 2016). Fonterra is having their own subsidiary in the Chinese market with
having direct investments in the country. It is helping them to have larger presence in the country
and offer their products in accordance to the local taste and preference pattern of the customers.
Moreover, it is also reported that Fonterra is working on the basis of cooperative in China with
having 2 hubs as of now. Each of these hubs is sourcing milk from the dairy farmers along with
having the accommodation for more than 30000 cows. Thus, the local dairy farmers are the
major stakeholders for Fonterra in their Chinese operation. However, on the other hand, risks of
financial loss are more for Fonterra due to the huge investments involved with having