Fonterra: Macro and Micro Environment Analysis Report

This report provides a comprehensive analysis of Fonterra, a major multinational dairy co-operative based in New Zealand. The analysis begins with an overview of Fonterra's operations, including its vision and core values. It then applies the PESTEL framework to assess the macro-environmental factors influencing the company, including political, economic, social, technological, environmental, and legal aspects. Following this, the report utilizes Porter's Five Forces model to evaluate the micro-environment, examining the threat of new entrants, the threat of substitutes, competitive rivalry, and the bargaining power of customers and suppliers. The report concludes by identifying key drivers of organizational change within Fonterra, such as employee satisfaction, technological advancements, and changing customer preferences, and discusses how these drivers relate to the company's mission. The analysis emphasizes the importance of external environment analysis for strategic planning and decision-making within the organization.

Running head: FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Fonterra: PESTEL and Porter's 5 forces analysis
Students’ name:
University
Author’s note:

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Executive summary
The following paper explains the importance of the external marketing environment analysis of
an organization. The marketing environment of an organization is a significant aspect for the
success and sustainability of a company. The planning and strategizing for future operations can
draw a magnitude of inputs from these analyses. Therefore, to explain how an organization could
incorporate these findings in their planning, the paper discusses the micro and macro-level
influence factors of Fonterra, one of the largest dairy co-operative of New Zealand. Utilizing
PESTEL and Porter’s 5 forces model analysis, the paper analyzes the external factors of the
company and finds out the key impact factors. Further, it points out the major driving agents of
the organizational change in the context of Fonterra and analyzes how these drivers may be
incorporated into the mission of Fonterra. Also, the paper makes a brief observation on how the
environmental analyses can provide inputs for the future planning of the organization.

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Table of Contents
Introduction......................................................................................................................................4
Fonterra- An overview.....................................................................................................................5
PESTEL analysis of the Macro-environment of Fonterra...............................................................6
Political factors............................................................................................................................6
Economic factors.........................................................................................................................6
Social Factors...............................................................................................................................6
Technological Factors..................................................................................................................7
Environmental factors..................................................................................................................7
Legal Factors...............................................................................................................................7
Analysis of Porter’s Five Forces......................................................................................................7
Threat of New Entrants............................................................................................................7
Threat of substitutes.................................................................................................................8
Competitive rivalry..................................................................................................................8
Bargaining power of the customers.........................................................................................8
Bargaining power of the suppliers...........................................................................................9
Importance of External Environment analysis................................................................................9
Drivers of Organizational Change...................................................................................................9
Employee Satisfaction...........................................................................................................10
Technological advancements.................................................................................................10

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Changing preferences of the customers.................................................................................10
Relation of the drivers of change with the Mission of the Organization...................................11
Conclusion.....................................................................................................................................11

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Introduction
There are several factors that influence an organization’s operations and success. The
management, the employees, the region it operates in, the potential competitors all contribute to
the performance of the company. Therefore, it is important to make decisions and design policies
considering all the necessary impact factors nonetheless.
One such significant aspect is external marketing environment. This is an essential
component to establish a successful relation with the customers. Marketing environment denotes
the combination of the internal and the external factors and forces that helps ore deters a
company’s relationship with the customers and helps them cater to the consumer needs
(Lancaster and Massingham 2017).
Analysis of these external forces effectively helps an organization to determine its future
strategies and ensure successful relationship with the consumers. There are several theories and
analysis models that produce comprehensive inputs for decision-making and strategizing. For
example, PESTEL, Hofstede’s cultural dimension model, Porter’s 5 Forces model are considered
as instrumental models to evaluate and analyze the micro and macro environment of an
organization (Anton 2015).
The paper aims to describe the importance of such analytic models, focusing especially
on PESTEL and Porter’s 5 Forces model, in the field of planning decision of an organization.
The organization in focus is Fonterra Co-operative Group Pvt. Ltd., which is one of the largest
dairy co-operatives of New Zealand. The paper will provide a brief overview of the organization
to familiarize its activities and nature of the business. Then, it will undertake a PESTEL analysis

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
for macro-environment analysis and point out its importance in the decision making. Further, it
will conduct a Porter’s 5 forces model analysis of the micro-environment and again assert its
significance in the decision making process. Finally, it will try to identify the major driving
forces for organizational change and how they fit with the vision and mission of the company
Fonterra- An overview
Fonterra Co-operative Group Private Limited is a multinational dairy co-operative based
in New Zealand. It was formed by merging two of the largest Kiwi dairy co-operatives, namely
Kiwi Co-operative Dairies and New Zealand Dairy Group, along with the New Zealand Dairy
Board acting as the marketing and export agent of the organizations. Established in 2001,
Fonterra is owned approximately by 10,500 farmers of New Zealand. Generating an estimated
GNZ$17.2 billion revenue, the organization is responsible for almost 30% of the total dairy
export of the world, as well as recognized as the largest company of New Zealand. (Gray and Le
Heron 2013).
Fonterra is a leading organization is the domain of dairy co-operative, serving across four
continents and over 140 countries. It has a wide range of products and brands that includes
various dairy products like fresh milk, flavored milk, yoghurt, cheese, ice cream and so on. The
organization operates through its brands, farming and processing units. The vision of Fonterra is
“to be the natural source of dairy nutrition for all people, young and old.” (Source:
www.fonterra.co.nz). It emphasizes the importance of the quality and innovation in their
organizational principles, maintaining its focus on natural products and spreading the goodness
of nature to all the customers. However, the core value of the company is described as
challenging boundaries, co-operative spirit, ethical and transparent practices within and outside
the organization and making decisions and planning focusing on sustainability and relationships.

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
PESTEL analysis of the Macro-environment of Fonterra
Political factors
Fonterra is a multinational co-operative operating in 4 continents and over 140 countries
(www.Fonterra.co.nz). Therefore, the organization is exposed to multitudes of political
environments and complexities other than New Zealand. Therefore, to analyze the political
factors for its macro-environment, the organization has to take note of the different policies and
regulations of the respective countries. However, in New Zealand, the organization enjoys a
stable political condition under the current Labor Party rule and a steady national growth that
contributes to the smooth operation of Fonterra.
Economic factors
The most important economic factor for a dairy cooperative is the purchasing capability
of the people. However, dealing in a basic necessity such as dairy, Fonterra can expect a steady
marketing opportunity for its products. Additionally, New Zealand is a rapidly developing free-
market economy. As per the national GDP of New Zealand, it is the 68th largest nation in the
purchasing power parity (Thomson 2016). Therefore, the existing economic environment
indicates a potential growth opportunity for Fonterra.
Social Factors
Dairy industry always has the advantage of sustainability and expansion as it deals with a
product deemed as necessary. Milk and milk-products are largely consumed items in New
Zealand as well as other parts of the world. However, the changing social perspective indicates a
shift towards health consciousness. Fonterra is equipped with meeting the challenge nonetheless

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
through their wide range of healthy products such as fat-free milk and other dairy items.
However, an imminent threat could rise from the increasing vegan lifestyle (Potts 2016).
Technological Factors
Fonterra makes it a point to maintain and improve their technology for farming, storing,
processing and packaging. However, the dairy industry is facing new challenge as variants of
products are available in relatively low cost. Therefore, to keep up with the competition, Fonterra
has to maintain innovation in processing and farming technology (Lyons et al. 2016).
Environmental factors
Dairy industry relies a great deal on the livestock and natural resources. Therefore,
awareness and responsible practices in resource procurement is an important factor. Besides, the
processing unit should also be careful regarding the carbon and water footprint of the whole
process (Blackett and Le Heron 2016).
Legal Factors
The different quality standards, labor laws, wage regulations, advertising and marketing
regulations are all significant aspects that an organization should follow. Fonterra, being the
largest dairy co-operative in New Zealand is well versed with Kiwi laws, but has to abide by
different kinds of regulations and legislations for being a multinational company (Turowski
2016).
Analysis of Porter’s Five Forces
Threat of New Entrants
Fonterra faces moderate to low threat of new entrant in the dairy industry. It is so because the
dairy and food market provides the organizations with high returns for the investments made,

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
thereby making it an attractive market for new entrants (Muirhead 2014). However, due to the
cost advantages of Fonterra as a monopolistic firm in the industry, it is able to maintain a
competitive advantage in the market thereby experiencing almost negligible threat from the
possibility of new entrants in the market.
Threat of substitutes
Fonterra faces a high threat of substitutes in the market. It is so because the food and
beverage industry is persistently engaged in research and development in order to cater to the
changing preferences of the customers. In this aspect various organizations are coming up with
innovations in their products and services that cater to the requirements of the customers and
their changing consumption behaviors (Han 2014). Therefore, to overcome this threat Fonterra
must come up with innovations in their products and diversify the range.
Competitive rivalry
Fonterra faces relatively low threat in the aspect of competitive rivalry. It is so because it
itself is one of the major brands in the dairy industry in New Zealand (McGiven 2016). It enjoys
a monopolistic position in the market and therefore remains at a competitive edge in the industry,
for this purpose, the threat of rivalry from any new entrant or any existing organization in the
industry is relatively low.
Bargaining power of the customers
Customer satisfaction is an essential element necessary for the successful operation of a
business organization. In this aspect, due to the absence of major players in the market, Fonterra
faces relatively low threat from the bargaining power of the customers. However, the firm has to
consider the changing preferences of the customers and product diversification in order to ensure
the maximization of their sales and thereby profitability.

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Bargaining power of the suppliers
The raw materials required for the production processes and supply must be made available
to the organization with the help of suppliers. Moreover, it is also the role of the suppliers to
ensure that the products reach the customers in the market. In this aspect, Fonterra faces
moderate to high threat from the bargaining power of the suppliers as the organization does not
have many options to choose from.
Drivers of Organizational Change
In the rapidly evolving age of globalization, it is very essential for the business
organizations to engage in changes and transformations in order to keep up with the changing
trends of the market (Cameron and Green 2015). Such organizational changes further ensures
that the organizational obtain a competitive edge in the market and successfully obtain their
goals and objectives. Such success also entails them to integrate the business activities and
procedures undertaken by the various internal and external stakeholders so that maximization of
productivity and profitability is ensured. The key drivers influencing such changes in Fonterra
may be listed as the following:
Employee Satisfaction
This is an important aspect that must be ensured by the organization in order to maintain a
high quality of performance among them and integrate them within the organizational structure
so that they may be able to put in their best efforts to obtain organizational success (Trépanier,
Fernet and Austin 2015). For this purpose, Fonterra may engage in changes in the payment
structures and incentives to motivate the performance of the employees.
Technological advancements

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
The recent developments and trends of technological innovations is an important driver of
change as it determines the extent to which the cost of operations and productions can be
managed (Eastwood, Jago, Edwards and Burke 2016). For this purpose, Fonterra may engage in
a process of technological changes in order to gain a competitive advantage in the market and
reduce increase cost effectiveness.
Changing preferences of the customers
The changing consumption patterns and behaviors of the customers is also an important driver
of change that must be taken into consideration by the business organizations in order to ensure
customer satisfaction and thereby their profitability. Forth this purpose, Fonterra may undertake
a process of product innovation and diversification so that the changing needs of the customers
are met.
Relation of the drivers of change with the Mission of the Organization
The main mission of the organization is to cater to the nutritional needs of the individuals
of all ages, young and old. For this purpose, Fonterra engages in a process of constant
diversification and innovation of its products in order to ensure that the changing needs of the
customers are met. So the main drivers of change including the changing preferences of the
customers and technological innovations and advancements are in line with the organizational
objectives and vision. The third driver of change, namely employee satisfaction is also a part of
the values of the organization which entails a cooperative and ethical spirit within the
organizational structure (www.fonterra.co.nz). Therefore, the satisfaction of the employees is an
important factor that is catered to by the organizational activities and processes.

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FONTERRA: PESTEL AND PORTER'S 5 FORCES ANALYSIS
Importance of External Environment analysis
These analytic tools help the organization understand their current standing in the market
as well as their relation with the customers. It can be asserted that Fonterra holds a monopolistic
authority over the Kiwi market in terms of their customer acquisition and retention, it still has
scope for expanding their business in new countries and markets. Therefore, to estimate their
future requirements in terms of skills, resources and strategies, these analyses are useful no
doubt. According to these micro and macro level analyses, it can be claimed that Fonterra needs
to devise new strategies for meeting the challenges of the current trends of anti-obesity, health
consciousness and changing preferences of food in the customers. It should plan how to meet
different social and environmental challenges in different countries. The evaluation of these
factors also shows that Fonterra must engage in constant innovations and transformations that
may be able to help it in maintaining its position as well as build a larger customer base.
Conclusion
From the above analysis it can be concluded that Fonterra which is a leading dairy
cooperative in New Zealand must keep into consideration several factors that may in turn
determine the strategies that it must undertake for its organizational functions and operations.
The external environment of the organization evaluated with the help of tools like Porter’s Five
Forces and the PESTEL model, provide useful insight on the various aspects of the competitive
market in which the organization is operative. Such factors in turn help in the determination of
the key drivers which aid the organization in strategizing transformations that are in line with its
vision mission and objectives. Such transformations in turn can ensure that the company may be
successfully able to fulfill its objectives and goals.