Strategic Management of Fonterra Co-operative Group Limited

This article provides an overview of Fonterra Co-operative Group Limited, a multi-national dairy firm from New Zealand. It discusses the background of the company, its stakeholders and shareholders, resources and competencies, competitors in overseas and New Zealand markets, advantages of competitors against Fonterra, and segmentation strategies. The article also includes references for further reading.

STRATEGIC
MANAGEMENT

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Contents
Part one..................................................................................................................................................1
Background of company....................................................................................................................1
Stakeholders and shareholders...........................................................................................................2
Resources and competencies.............................................................................................................3
Part two.................................................................................................................................................5
Competitors in overseas.....................................................................................................................5
Competitors in New Zealand.............................................................................................................5
Advantage of Competitors against Fonterra......................................................................................6
Segmentation.....................................................................................................................................6
REFERENCES......................................................................................................................................7

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Part one
Background of company
Fonterra Co-operative Group Limited is a multi-national dairy firm from New Zealand. It has
a co-operative form of business model and is owned by around 10,500 farmers from the
country. The success of the company is responsible for more than 30% of the dairy export
done in the whole world. It is having revenue of around NZ$17.2 billion (Gray & Le Heron,
2010). It is the largest company in New Zealand. This company was founded back in the year
2001 when two largest dairy co-operative (New Zealand Dairy Group and Kiwi Cooperative
Diaries) merged with each other under New Zealand Dairy Board. This company deals in the
business of dairy products such as butter, ice-cream, Milk, cheese. There are four brands
working under Fonterra’s name. The brands are Global, New Zealand, Australia and Chile. In
this the largest numbers of product brand is in the New Zealand. Apart from this there are
large numbers of business units and subsidiaries working in collaboration with Fonterra.
They have around 10,000 farmers attached with them. They have an experience of more than
170 years of dairying in New Zealand. They are having the financial capital of $9,552 million
as well as physical asset of $6,810 million (Fonterra, 2018). Apart from this they have more
than 22,000 talented employees all across the globe. They also have natural resources in the
form of 4.7 million milking cows and these Cow rely on 1.8 hectare of pastoral land.

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Figure 1: Corporate Office, New Zealand
Stakeholders and shareholders
There are multiple stakeholders attached with Fonterra Company. These stakeholders are
making it possible for the company to manage their business at the international level.
 Central and regional government: They engage with central and regional government
at different levels coordinated by their government and stakeholder’s affairs team.
 NGOs: Fonterra works with these NGOs on the areas such as water responsibility,
water quality and accessibility, climate change and mitigation, health and nutrition as
well as reducing waste.
 Employees: They engage with their employees on regular basis through engagement
with unions and regular engagement surveys. They are integral part of their business
hence they work with them to resolve the challenges facing the company.
 Farmers: They are their major suppliers and hence company also give importance to
their sustainability (Fonterra, 2018).
 Investors: Fonterra engage with their investors regularly by updates, formal reporting
and meetings conducted by the Capital Markets team. Their major investors are unit
holders, banks and bond holders.

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 Customers: Fonterra engages with their customers with the help of accounts
management teams and also through their programmes like Carbon Disclosure project
and SEDEX.
The mission that is driven by shareholders is to work in the areas such as Water conservation,
Children wellbeing, mitigation, Food safety and quality, water quality and accessibility,
organisational governance, financial performance, biosecurity risks to plants, human health
and animals and climate change (Fonterra, 2018).
Their collaboration with shareholders and their representation ensures that company is able to
achieve organisational goals and hence increasing their profitability.
Resources and competencies
In order to evaluate their competencies, it is essential to use VRIO model. The model for
understanding the resources and core competitiveness of Fonterra is provided below:
Resources
and
Competencies
Value Rare Imitation Organisation Competitive
advantage
Activities are
according to
Corporate
strategy
Yes No Every firm
has their
own strategy
Fonterra has
organisational
skills to gain
maximum
from their
strategies
(Fonterra,
2018).
They still have
huge potential
to work on it.
Leadership
vision for
upcoming
challenges
Yes No Inimitable Organisation
has positive
leadership to
implement
their vision.
It will provide
them huge
competitive
advantage.
Brand
positioning
Yes No Can be
imitated but
need huge
capital
Fonterra has
positioned its
brand on the
basis of
It provides
them temporary
competitive

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investment consumer
behaviour
advantage.
Availability of
Cheap Capital
Yes No Imitable It is not
totally
exploited
They are
insignificant in
creating
competitiveness
Brand
extension
opportunities
Yes As most of
their
competitors
are also
trying to
enter in
these
markets
Imitable It will require
higher budget
which is
available with
firm
Temporary
competitive
advantage
Availability of
raw materials
Yes Yes Imitable Yes Sustainable
competitive
advantage
Customer
community
yes yes It is very
difficult to
imitate
There is still
upside
Strong
competitive
advantage
Digital
technology
Yes No Imitable Leading firm
in industry
Provides
sustainable
competitive
advantage.

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Part two
Competitors in overseas
There are large numbers of competitors of the company in different parts of the world. Some
of the major competitors are:
 Saputo: It is a diary processor in Canada and the largest cheese producer in US. It is
having an Annual Revenue of $9.5B with employee strength of around 15,000.
 Lactalis: It is a multinational dairy product firm from France. It is having revenue of
16.5 billion euros and employee strength of 75,000.
 Arla: It is an international food cooperative from Denmark and formed after the
merger of Arla and MD foods. It is having employee strength of 18,765 and has
revenue of 10.3 billion Euros (TDB advisory, 2017).
 Best Cheese USA: This is one of the biggest cheese producers in USA and is very
renowned in the local areas. They are known for their quality of their products.
 Agropur: It is a North American dairy company from Canada. They have around
8,300 employees and have generated revenue of C$6.4 billion.
 Davisco: It is a firm that deals in the business of dairy products and is headquartered
in USA. This firm markets brands like BioZate and BiPRO.
Competitors in New Zealand
Fonterra has very lesser numbers of competitors in New Zealand market. Sometimes it is said
that they hold the monopoly in the New Zealand market. It is not due to lesser profit chances
in the New Zealand. Some of the competitors that are from the New Zealand are:
 The a2 Milk Company: This is a public listed company that commercialises
intellectual property related to A1 protein-free milk.
 Synlait: It is also a local dairy processing firm based in the New Zealand’s Canterbury
region. This firm manufactures nutritional milk powders and other ingredients.
 Evansdale Cheese: It is a SME and is producer of handmade cheeses. They are known
for the best quality cheese in the industry.
 Lewis Road Creamery: This Company produces range of milk products which
includes ice-cream, cream, butter and milk. It is known for its brand of chocolate milk
(TDB advisory, 2018).
 Tatua Dairy Company: It is an independent co-operative dairy firm. It has generated
revenue of NZ$289 million and has around 370 employees.

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 Westland Milk Products: It is also a cooperative dairy firm and is owned by more than
429 farmer shareholder. It is having approx. 500 employees and has generated
revenue of NZD $588 million in the year 2016.
Advantage of Competitors against Fonterra
As in the above section of the report it was found that there are large numbers of competitors
of Fonterra existing in different parts of the world.
The major advantage of their competitors from America and Europe is that these countries
are big and hence they get a larger local market which is helpful in stabilising their financial
position. This is because whenever a company faces different challenges in the international
market, they manage it up in the local market. This is because they have a better hold in the
market. In spite of such a huge business in all across the globe, this company has failed to
create larger brand awareness outside New Zealand (Gray & Le Heron, 2010). Along with
this, their competitors have larger range of products to offer which helps them in creating
larger financial strengths.
Their competitors are trying to diversify their product range. At the same time, they are also
investing their time and money in creating new products that can attract more numbers of
competitors (Reuters, 2015). These dairy competitors are also competing with the other food
related companies. This is because these foods related firms are not only dealing with food
industry but have also entered into the dairy market.
Segmentation
The segmentation is done by the company on the basis of different variables. Some of the
variables that are used by Fonterra are:
Segmentation Basis Description
Geographic Region
Locality
Fonterra has segmented the market on the basis of
geographies where they are delivering their products at
both international and national levels. In terms of
locality they are focusing on all three urban, sub-urban
and rural areas.
Demographic Age
Income level
Fonterra targets people from all age group. They have
segmented all the people i.e. children, teen, youngsters

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and old. Age range lies from 3 years to 80 years. Their
products are available at lower prices hence targeting
people that are having all different income levels.
Psychographic Lifestyle In this they have main focus towards the people that are
demanding for health conscious food as well as the
people that love Dairy products (Fonterra, 2018).
Behavioural Degree of
loyalty
Cost benefit
They have focused towards people that are loyal to the
brand as well as the Switchers. They also are looking at
the people that looking for Dairy products at lower cost.
REFERENCES
Fonterra, 2018. Fonterra Annual Report 2018. Retrieved from:
https://www.fonterra.com/content/dam/fonterra-public-website/phase-2/new-

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zealand/pdfs-docs-infographics/pdfs-and-documents/financial-results/fy19/Fonterra-
Annual-Report-2018.pdf
Fonterra, 2018. Our Farmers. Retrieved from: https://www.fonterra.com/nz/en/about/our-
farmers.html
Fonterra, 2018. Sustainability Report. Retrieved from:
https://view.publitas.com/fonterra/sustainability-report-2018/
Gray, S., & Le Heron, R. (2010). Globalising New Zealand: Fonterra Co‐operative Group,
and shaping the future. New Zealand Geographer, 66(1), 1-13.
Reuters, 2015. Fonterra battles foreign firms for NZ milk supply. Retrieved from:
https://www.reuters.com/article/newzealand-fonterra-supply/fonterra-battles-foreign-
firms-for-nz-milk-supply-idUSL6N0VE00520150316
TDB advisory, 2017. Fonterra’s Competitors: Strategies and Performance. Retrieved from:
https://www.tdb.co.nz/wp-content/uploads/2016/05/Fonterras-Competitors-Strategies-
and-Performance-Apr-17.pdf
TDB advisory, 2018. New Zealand Dairy Companies Review. Retrieved from:
https://www.tdb.co.nz/wp-content/uploads/2018/05/TDB-Dairy-Companies-Review-
2018-1.pdf