Strategic Management of Fonterra: Business Units, Strategies, and Competitive Reality

This report discusses the business units, strategies, and competitive reality of Fonterra, a leading agribusiness company. It explores the business level strategies of cost leadership and product differentiation, as well as the competitive landscape. Recommendations are provided for the strategic direction of Fonterra.

STRATEGIC MANAGEMENT

Contents
Introduction...........................................................................................................................................3
Business units, divisions and identification...........................................................................................3
Business level strategies........................................................................................................................4
Product Differentiation......................................................................................................................4
Cost leadership..................................................................................................................................5
Focus.................................................................................................................................................5
Competitive reality................................................................................................................................6
Recommendation...................................................................................................................................7
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9

Introduction
This report brings out a discussion on agribusinessfibre organisation. The report identifies the
business, units, service lines, and products of Fonterra and its business level strategies that
include cost leadership and differentiation. At last, report discusses the model of competitive
reality and finally implement and evaluate the strategy in order to make recommendations to
direct the strategic direction of Fonterra. The report has brought out with business level
strategies that include cost leadership, product differentiation, and focus.
Business units, divisions and identification
Fonterra isagribusinessFibre Companyestablished in 2001. It is among the six largest diaries
in the world. Fonterra is a leading company in the industry in Australia and it is
headquartered in New Zealand (Fonterra, 2017).Currently, the company has subsidiaries such
as mainland cheese,anchor, Anmum, and Soprole. Fonterra is a cooperative company that
manufactures, farms, and channelize dairyproducts at both national and international level
from Australia, North America, Middle East, Africa, and Asia (Fonterra, 2018). The
organisation continues to export nearly 95% of its local production in more than 100
countries. The organisation has collaboratedwith various companies on the global level that
makes it global dairy exporter.There is number of business that are hold by the Fonterra
where the company includes consumer good section, NZMP ingredients have supplies of
dairy products, anchor food includes food service supplies. Varied range of business units
assist the organisation to serve various segments of the customers. While considering
consumer good section, wide range of products are offered such as perfect Italian used to
make meals, western star butter, Bega cheese, and anchor milk. Under the NZMP ingredients
of Australia, the Fonterra supplies the dairy products so that it can serve domestic and
industrial needs (Fonterra, 2017). In terms of generates a major portion of revenue, it is

observed that after consumer division, food supply divisions and supply division of
ingredients contributes to the revenue generation.The main reason is that Fonterra, it shares
the market in both New Zealand and Australia, and it is recognised
asbestsellingbrand.Consumer brand mainly depends on brand value of Fonterra (Fonterra,
2018).
Business level strategies
While identifying the business level strategies, it has been seen that the company has key
approach towards human resource management where the organisation gives due respect to
the employees.The important trait of the staff is their emotional intelligence so that
management can deal with its employees very well.
Product Differentiation
Organisation is loyal to produce high quality, which creates value for both organisation and
customer. The unwavering obligation surpasses the customer satisfaction that can deliver
safe, exceeded customer satisfaction and complying with the regulatory framework that
further enablethe organisation to ensure that it gain competitive advantage. The members of
Fonterra has a well-trained team, which supports quality through total quality management
with food that has become a key differentiator in the market.The organisation is among
theleading organisationwhile considering turnover. Fonterra plays an important role in the
prosperity of New Zealand as the organisation contributes to 28 percent of the total exports
(Wheelen, Hunger, Hoffman,&Bamford, 2017).Being leading exporter, the organisation likes
a considerably high brand awareness that can support the sales. The company has a dedicated
sales manpower and a marketing team that have contributed to build brand awareness. The
organisation supply its raw material through the local farmers who provide quality.In order to
procure the goods, it should include category management, vendor management, strategic
sourcing, that are further supported by the SAP systems in order to ensure their compliance

with procurement, their low cost and their process efficiency. The company have dairy pilots
in china in order to increase the supply (Alamdari, & Fagan, 2017).
Cost leadership
Whileunveiling its market conditions, it has been seen that Fonterra has revealed its industry
position in the NZ economy as it results in generating 90 percent of the products to over 140
countries.Fonterra has remained the largest provider to the country economy, which further
generates $NZ 19 billionrevenues from the exports (25% of the merchandise exports). The
main objective of Fonterra is to become the cost leader of the global diary. The organisation
aims to low cost supply of the dairy products that is the leading price commodity manager
(Semuel, Siagian, & Octavia, 2017). The company is well knownfor its quality that makes it a
key differentiator. The organisation`s research centre is its competitive feature, which is the
largest diary. Apart from this, the organisation possesses more than 600 patents and
application to protect the intellectual property that are derived from the research. Strategic
innovation group supports innovativeness, which is unique and ensures sustainability of its
dairy products (Semuel, Siagian, & Octavia, 2017). Among all the competitors, Fonterra has
wide range of brands that can cater differentneeds of market.Fonterrahave different position
in the market as they are highlydifferentiated in terms ofqualitybrand in which anchor and
tiptopthat have strong presence in the developed countries (Eva, Sendjaya, Prajogo,
Cavanagh, & Robin, 2018).
Focus
Currently, the organisation earns for more than 20 percent of the country`s revenue from the
exports. The company is investing money in order to form new corporate strategy. The
company will focus on the activities in order to produce and market the commodity at the
lowest possible cost.The company also focus on growth in earnings by pushing harder on the
activities at what level to which Fonterra has excelled (Pham, Pham, & Pham, 2016).The

company has announcedto more than 13000 famers where some of them who are
criticalabout poor performance as by the company.It aims to stay as a market leader by
introducing the innovative products by launching successful products.The company wants
tostrengthen and satisfy the needs of more adventurous generation of the consumers with a
functional product (Porter, &Heppelmann, 2017).
From the current business level strategy, it is seen that the company is upholding the Fonterra
standards in order to maintain leadership position in the industry as it delivers advanced
customer service inan efficient or profitable manner.The company createssuch organisational
culture where employees share best and dedicatedcoach (Porter, & Lee, 2015).
Competitive reality
(Source: Eva et al., 2018).
Some of the competitors of the organisation are Saputo, Arla, Lactalis, Bemul, Amul,
A2milk, Sarora, and Shoof International. However, it is assumed that Arla generates 60% of
the revenue of Fonterra; Saputo generates 46 percent of the Fonterra revenue (Nickols,
2016).A2 milk as well as Fonterra decides to price penetration strategy as compared to its
competitors. Both have great market share. In 2018, Fonterra and A2 milk entered the
strategic relationship that establishes a relation between Fonterra milk pool and its supply

chain, market sales, manufacturing capabilities and the distribution capacity with A2`s brand
strengths and capabilities (Galpin, 2019).As entered in the partnership, Fonterra has entered
intohuge conversations with the farmer in order to source A2 milk pool for products in New
Zealand that is intendedto expand in order to meet the increasing demand of the A2 milk. The
four other more competitors of the company are Oceania, Miraka, Synlait, Westland and
OCD.OCD is well known for its new processors, as this company will focus on commodity
productsand whole milkpowder, and huge cheese for the export markets. Tatuahas a co-
operative owned company with 113-farmer suppliers (Scoop, 2018).It will operate value-
added spectrum from OCD from producing high quality value ingredients such as lactoferrin,
hydrolysates and other consumer products like Madcarpone and Tatua crème fraiche.
Synlaitis listed on New Zealand`s as well as Australian stock exchange.The company rely on
producing milk powder in order to make high valued functional ingredients, cream and infant
formula, and UHT milk by selling the productson the basis ofbusiness (Hill, 2017).
Recommendation
With respect to foreign nations, the organisation have started cooperative mode of corporate
as it will help to attain competitive advantage, which is acquired from Australia. The next
considerationis related to product and marketdevelopment that will provide strategic intentin
order to bringdairy-based products such as Ice cream.Further, this will provide several
benefits in order to increase the target segment of the customers that result in increase in sales
and profitability.Moreover, the company needs to ensure that organisation is performing
practises that can attain sustainability according to the environment standards as it already
faced several problems in New Zealand that is concerned with
environmentaldegradation.Apart from this, it will improve the corporate identity brand in the
market. The company is required to focus in market development strategies and by
considering this that they need to enter the potential foreign country.

Conclusion
From the above discussion, it can be concluded that the company is a leading manufacturer
and distributor of the dairy products. By studying the business level strategy, it is seen the
organisation is able to achieve cost leadership, product differentiation strategy, and focus.
The organisation possess have number of capabilities in the market as its presence, number of
competitors, and financial resources. By considering the successful operation in the global
market and finally fulfil the diversified needs of the customer segment.

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